A stock is currently selling for $60 per share. In a year the price will be either $70 or $40. The risk-free rate is 5%. You are interested in valuing the at-the-money call option that matures in a year.

Now assume that the price of the above call option is $10. You buy one unit of the call option and also buy one unit of the (at-the-money) put option (on the same stock). The price of the put option is also $10. Draw a profit/loss (not payoff) diagram for your combined position on the expiration date, and answer the following questions.

(a) (1 pts) What is the profit/loss from your long position of the call option if the stock price is 50 on the expiration date?

(b) (1 pts) What is the profit/loss from your long position of the put option if the stock price is 50 on the expiration date?

(c) (3 pts) What is the profit/loss from your combined (call & put) position if the stock price is 90 on the expiration date?