Q2. The price of a share of Company X's stock is $50. A 3-month call option on this stock with a strike price of $40 is trading at $12 and a 3-month put option on this stock with a strike price of $40 is trading at $1.50. You are unable to borrow at the risk-free rate in the financial market but short sales are allowed. a. How can you create a risk-free borrowing (you are the borrower) using options and the stock of Company X? What is the effective annual risk-free rate that you expect to pay on the risk-free loan that you have created? Now assume you are able to borrow at the risk-free rate in the financial market. The rate is the same as you obtained in part b above. Short sales, however, are not allowed. c. How can you create a short position in the stock of Company X? d. If, at the end of three months, Company X stock is trading at $55 then what is you profit of loss from this short position