Problem:
You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of 150 at year-end. XYZ currently sells for 150. Over the next year, the stock price will either increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on XYZ Co.
Requirement:
Question 1: How much would it cost to purchase if the desired put option were traded?
Question 2: What would be the cost of the protective put portfolio?
Note: Please show guided help with steps and answer.