Question 6. Protective Put (10 marks) Suncor Energy Inc. {5U} shares are listed on the New York Stock Exchange. at 9: on January 14, 201E, these…

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Question 6. Protective Put (10 marks) Suncor Energy Inc. {5U} shares are listed on the New York Stock Exchange. at 9:30 a.m. onJanuary 14, 201E, these shares sold for $21.85 per share. The volatility on the returns ofSuncor shares is approximately 24%. The following call and put option contracts were available for the months of January, February, and March: —“ m…23 u24 U25 StrikefExpiry January 22, 21116 February 19, March 18, 20162016 Each option contract involves 1oo shares. The risk—free rates for these three expirationdates are (1.6%, 1%, and 1.2%. All three rates are continuously compounded. Given the information on Suncor shares and options above, construct a protective put usingthe 23—put with February expiration. Hold the protective put position until expiration. b. Use a table to show the payoffs and profits when the put option expires in-the-money and out-of—the-money. [2 marks} c. Calculate the potential profits for this protective put, using share prices ranging from Gto 26. Plot a graph of these potential profits, with share prices on the x-axis, and profitson the y-axis. {Hint: It may be easier to do this in an Excel spreadsheet.) {2 marks] d. 1iii-I’hat is the breakeven share price at expiration for this protective put? [1 mark} e. 1iii-I’hat is the maximum profit and maximum loss on this protective put? [1 mark}

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