Rumors that the Deepocketa Corporation is going to tender a hostile offer for a controlling interest in the Morris Corporation have started the price of Morris's stock moving up. However, if a hostile takeover attempt fails, Morris's stock price will probably fall dramatically.

To profit from this Alex Frank has established the following strategies with the stock of the Morris Corporation:

(1) Purchased one 3-month call with a striking price of $40 per share for a $2 premium per share.

(2) Paid a $1 per share premium for a 3-month put with a striking price of $40 per share.

 Required:

(a) Determine Alex's ending position if the takeover offer bids the price of Morris's stock up to $40 in 3 months?

(b) Determine Alex's ending position if the takeover fails and the price of the stock falls to $35 in 3 months?

c) Ignore transaction costs and taxes and assume each option is for 100 shares?