10 (a) Suppose the price of a 3-month European call option with an exercise price of S110 is $8 and the price of a European put option with the same exercise price and maturity is $12. The current stock price is $105. You buy the call option and write the put option. Draw the payoff/profit diagram for your position against stock price at maturity. At what terminal stock price would you exactly break even (i.e. at what stock price would the profit or loss from terminal payoff exactly equal the value of your original position)? . Break-even price- 106 (b) Let r-10%. Consider the one-period binomial model below. 15 10 Determine the number of stocks you would buy or sell and the amount of money you would borrow or lend at time 0, to replicate period 1 payoff for a one-period call option withX-11. What is the fair price of the call option at time 0? . Buy .5 shares, borrow $3.18 . C $1.82