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2. The current price of a non-dividend paying stock is $50 and the continuously compounded risk-free interest rate 8%. Using options, you would like to just expose yourself to the risk and returns of the stock over a period of 6-months without actually buying the stock. Though you dont have to pay the price of the stock for this, there is still a cost involved now. How much is it? (Hint: Use put-call parity and the strike price of the options equals to the current stock price)

18. Which of the following statements is true?

i. The current stock price is $30, and you create a protective put with a strike price of $28. If the put premium is $1.20, the maximum loss that you can incur is $3.20.

ii. One of the reasons for the collar strategy is to reduce the premium on a protective put.

a. I only

b. Both I and II

c. Neither I nor II

d. II only

3. In February, a company wants to lock in the interest rate that will be earned for three months on a $9 million deposit to be made after seven months in September. The company decides to trade in Eurodollar futures and the September Eurodollar futures price is 98.50. Assume that in September the company closes out its position in the futures market when the LIBOR is 2.0% per annum and the futures price is 98.00. Assuming that the correct number of contracts were traded, what is the effective interest earned (in dollars) by the company on its deposit after taking into account the gain or loss in the futures market?

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