Required:

a. Explain how to create a synthetic portfolio to replicate a call option using Put-Call Parity. Discuss the practical implications of this synthetic call. (3 marks)

b. Use equations and symbols to derive the net investment for this synthetic portfolio at initiation (Date 0). (4 marks)

c. Use equations and symbols to derive the net positions of the portfolio at expiration (Date T) if (1) ST < X ; (2) ST > X. (6 marks)