(b) The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay within that range for the next three months. The price of a three-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $2. i) Suggest an investment strategy using a put and a call to exploit your belief about the stock price's future movement. (3 marks) ii) What is the breakeven price of your position in part (1)? (2 marks) iii) Draw the profit and loss diagram for the net/overall position in part (1). (6 marks) iv) How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? [Hint: Put-call parity] (3 marks) (b) The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay within that range for the next three months. The price of a three-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $2. i) Suggest an investment strategy using a put and a call to exploit your belief about the stock price's future movement. (3 marks) ii) What is the breakeven price of your position in part (1)? (2 marks) iii) Draw the profit and loss diagram for the net/overall position in part (1). (6 marks) iv) How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? [Hint: Put-call parity]