# solution

A put option in finance allows you to sell a share of stock at a given price in the future. There are different types of put options. A European put option allows you to sell a share of stock at a given price, called the exercise price, at a particular point in time after the purchase of the option. For example, suppose you purchase a six-month European put option for a share of stock with an exercise price of \$26. If six months later, the stock price per share is \$26 or more, the option has no value. If in six months the stock price is lower than \$26 per share, then you can purchase the stock and immediately sell it at the higher exercise price of \$26. If the price per share in six months is \$22.50, you can purchase a share of the stock for \$22.50 and then use the put option to immediately sell the share for \$26. Your profit would be the difference, \$26 – \$22.50 = \$3.50 per share, less the cost of the option. If you paid \$1.00 per put option, then your profit would be \$3.50 – \$1.00 = \$2.50 per share. The point of purchasing a European option is to limit the risk of a decrease in the per-share price of the stock. Suppose you purchased 200 shares of the stock at \$28 per share and 65 six-month European put options with an exercise price of \$26. Each put option costs \$1.

a) Using data tables, construct a model that shows the value of the portfolio with options and without options for a share price in six months between \$20 and \$29 per share in increments of \$1.00. What is the benefit of the put options on the portfolio value for the different share prices? For subtractive or negative numbers use a minus sign even if there is a + sign before the blank (Example: -300). If you answer is zero, enter â€œ0â€.
 Share Price Benefit of Options \$20 \$ \$21 \$ \$22 \$ \$23 \$ \$24 \$ \$25 \$ \$26 \$ \$27 \$ \$28 \$ \$29 \$
(b) Discuss the value of the portfolio with and without the European put options.
The lower the stock price, the (more, less)beneficial the put options. The options are worth nothing at a stock price of \$(____)or (higher, lower) There is a benefit from the put options to the overall portfolio for stock prices of \$(____)or (higher, lower) .

EVERYTHING IN BOLDNEEDS TO BE ANSWERED. THANK YOU! *The (___) needs to put a specific amount or number

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