Rob wishes to buy a European put option on BioLabs, Inc., a non-dividend–paying common stock, with...

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Rob wishes to buy a European put option on BioLabs, Inc., anon-dividend–paying common stock, with a strike price of $45 andsix months until expiration. BioLabs' common stock is currentlyselling for $32 per share, and Rob expects that the stock pricewill either rise to $64 or fall to $17 in six months. Rob canborrow and lend at the risk-free EAR of 5 percent.
a. What should the put option sell for today? (Do not roundintermediate calculations and round your final answer to 2 decimalplaces (e.g., 32.16).)
b. What is the delta of the put? (Do not round intermediatecalculations and round your final answer to 4 decimal places (e.g.,32.1246). Negative value should be indicated with a minussign.)
c. How much would Rob have to lend to create a synthetic put?(Do not round intermediate calculations and round your final answerto 2 decimal places (e.g., 32.16).)
d. How much does the synthetic put option cost? (Do not roundintermediate calculations and round your final answer to 2 decimalplaces (e.g., 32.16).)

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4.0 Ratings (573 Votes)

Lets create the replicating portfolio of stocks and bonds to match the put option Buy delta D nos of stock Lend and amount L All financials below are in Current stock price S0 32 strike price K 45 Stock price in up state Su 64 Stock price ion See Answer

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Rob wishes to buy a European put option on BioLabs, Inc., anon-dividend–paying common stock, with a strike price of $45 andsix months until expiration. BioLabs' common stock is currentlyselling for $32 per share, and Rob expects that the stock pricewill either rise to $64 or fall to $17 in six months. Rob canborrow and lend at the risk-free EAR of 5 percent.a. What should the put option sell for today? (Do not roundintermediate calculations and round your final answer to 2 decimalplaces (e.g., 32.16).)b. What is the delta of the put? (Do not round intermediatecalculations and round your final answer to 4 decimal places (e.g.,32.1246). Negative value should be indicated with a minussign.)c. How much would Rob have to lend to create a synthetic put?(Do not round intermediate calculations and round your final answerto 2 decimal places (e.g., 32.16).)d. How much does the synthetic put option cost? (Do not roundintermediate calculations and round your final answer to 2 decimalplaces (e.g., 32.16).)