David purchases a put of CBA with exercise price $50 and sells a put of CBA with exercise price $55, both put options have the same expiration date.

a. Draw the payoff diagram for his strategy as a function of the stock price at expiration. (8 marks)

b. Draw the profit/loss diagram for this strategy as a function of the stock price at expiration. (hint: which option has a higher premium?). (4 marks)