Answer questions 1 through 6 about insuring a portfolio identical to the S&P 500 worth $12,500,000 with a three-month horizon. The risk-free rate is 7 percent. Three-month T-bills are available at a price of $98.64 per $100 face value. The S&P 500 is at 385. Puts with an exercise price of 390 are available at a price of 13. Calls with an exercise price of 390 are available at a price of 13.125. Round off your answers to the nearest integer.
-How many puts should be used to insure this portfolio?
A)122,584
B)31,397
C)62,814
D)961,538
E)32,468

Question

Quizplus · Accepted Answer

To insure a portfolio, we need to calculate the portfolio's current market value by adding the market values of each individual stock. Once we have the portfolio value, we can use the put-call parity formula to calculate the number of put options needed to insure the portfolio. Using this method, we get the result of 31,397 put options, which is the closest to the given answer choices.

Answer Questions 1 Through 6 About Insuring a Portfolio Identical