Reference no: EM13535939

1) Joe buys a share of stock at S0, buy a 6-month put option for $P on the same stock with a strike price X = $50, and write a 6-month call option for $C with a strike price X = $50. Joe spends a total of $48 to establish the entire portfolio. Assume that the stock does not pay any dividend during the 6-month period. What is the risk-free interest rate that makes the put-call parity hold?
2)You have $1,000 to invest for six months. You can buy stocks of Peach, Inc. The stock price is $100 per share. To protect you from losing too much of your investment, you also purchase put options each for $1.00 with a strike price of $90. To fund this put, you also write and sell call options on the stocks each for $1.00 with a strike price of $105. What is the maximum profit and loss for your position? Draw the profit and loss diagram for your strategy as a function of the stock price at expiration (assume that stock investment,
put and call options have the same expiration date).