Problemjoe purchased a stock index fund at 1200 per share, Ask an Expert

Finance

Problem:

Joe purchased a stock index fund at $1200 per share. To protect his loss, he also purchased an at-the-money European put option on the fund for $60 with 3 month time to expiration. Sally purchased the stock index at the same time asJoe but she purchased an European put option with strike price of $1170, which only costs $45.

Required:

Question 1: When would Joe be able to break even?

Question 2: When would Joe's and Sally's profits be the same?

Question 3: When would Sally outperform Joe?

Note: Please provide equation and explain comprehensively and give step by step solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91162859

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