Assume that risk-free interest rate is 4% (continuously compounded), and for the given stock, whose present price is $15 / share, price of a 6-month, 17-strike put option is $1.93 and price of a 6-month, 14-strike call option is $1.57.
i) Suppose stock pays no dividends, determine price of a 6-month, 14-strike European put on the stock.
ii) Assume I buy 17-strike put, and to decrease my premium, I sell two 14-strike puts. Determine profit at expiration from this combined financial instrument as (piecewise) function of spot price in six months.
iii) For what spot prices (i.e., stock prices in six months) does instrument in (b) have positive profit?
iv) Find maximum loss we can maintain from the transaction?