1. Richards Inc. stock currently trades for $40, but you believethe company's earnings will decrease dramatically in the next sixmonths which in turn will cause the company's stock to depreciate.Six-month European call options on the stock have an exercise priceof $45 and a premium of .75. The annual risk free rate is 3%. Youwant to create a portfolio that mimics the payoff of owning a6-month European put on on the stock. Which of the following stepsmust you do in order to achieve this payoff?

a. Buy the call option, sell the stock, and borrow the presentvalue of $4500 discounted at the risk-free rate.

b. Sell the call option, buy the stock, and invest the presentvalue $4500 discounted at the risk-free rate.

c. Buy the call option, sell the stock, and invest thepresent value of $4500 discounted at the risk-freerate.

d. Sell the call option, sell the stock, and invest the presentvalue $4500 discounted at the risk-free rate.

2. What should be the price of a six-month European put optionwith an exercise price of $45 according to put-call parity? Roundintermediate steps to four decimals and your final answer to twodecimals. Do not use currency symbols or words when entering yourresponse.

$5.08

3. Find your portfolio's profit/loss if Richards stock sells for$32 at the end of six-months. Round intermediate steps to fourdecimals.

a. 508

b. 792

c. -792

d. -508

e. 658

4. DEF stock currently trades at $112.

	Call Premiums		Put Premiums
Strike	Jan.	Feb.	Jan.	Feb.
105	7.50	7.75	.50	.60
110	6.25	6.50	.65	.75
115	1.15	1.20	3.25	3.62
120	.75	.95	8.10	8.85

What is the time value of the 120 Feb. put option?

a. 0

b. 0.85

c. 0.62

d. none of the above.

I've bolded the answers I believe are right after doing thework. I would just like to double check my work and if I'm wrongplease provide an explanation. Thanks!