Finance homework help?

Posted on 2014-04-17 11:56:00 in Finance by ROC

Hi i'm kinda stuck on this question.



An investor purchases a stock for $56 and at the same time also purchases a put option on the same stock with an exercise price of $47 for a premium of $3. The put option expires in one year. Assume that the stock pays no dividends, there are no transaction costs or taxes, and the investor will sell the stock in one year, exactly when the option expires.



a) What is the maximum profit the investor can earn on the combined position (stock + put option)?

b) What is the lowest possible profit from the combined investment?

c) It is now exactly one year later and the investor tells you that the loss on the combined position is -$6. What is the stock price based on that information?

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