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?

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

What should be the price of a six-month European put option withan 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.

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

• 508
• 792
• -792
• -508
• 658