Suppose that an investor holds a share of Sophia common stock, currently valued at $50. She is concerned that over the next few months the value of her holding might decline, and she would like to hedge that risk by supplementing her holding with one of three different derivative positions, all of which expire at the same point in the future: a. Using a table similar to the following, calculate the expiration date value of the investor's combined (i.e., stock and derivative) position. In calculating net portfolio value, ignore the time differential between the initial derivative expense of receipt and the terminal payoff. (1) A short position in a forward with a contract price of $50. Expiration Date Sophia Short Forward (X=$50) Initial Short Stock Price (S) Payoff =max (0, S-50) Forward Premium Net Profit 25 $25.00 $0.00 $50.00 30 $20.00 $0.00 $50.00 35 $15.00 $0.00 $50.00 40 $10.00 $0.00 $50.00 45 $5.00 $0.00 $50.00 50 $0.00 $0.00 $50.00 55 ($5.00) $0.00 $50.00 60 ($10.00) $0.00 $50.00 65 ($15.00) $0.00 $50.00 70 ($20.00) $0.00 $50.00 75 ($25.00) $0.00 $50.00 (2) A long position in put option with an exercise price of $50 and a front-end premium expense of $3.23. Expiration Date Sophia Long Put (K=$50) Initial Long Put Stock Price (S) Payoff = max (0,50 S) Put Premium Net Profit 25 $25 00 ($3 23) $46.77 30 $20.00 ($3.23) $46.77 35 $15.00 ($3.23) $46.77 40 $10.00 ($3 23) $46.77 45 $5.00 ($3 23) $46.77 50 $0.00 ($3.23) $46.77 55 $0.00 ($3 23) $51.77 60 $0.00 ($3.23) $56.77 65 $0.00 ($3 23) $61.77 70 $0.00 ($3.23) $66.77 75 $0.00 ($3.23) $71.77 (3) A short position in a call option with an exercise price of $50 and a front-end premium receipt of $5.20. Expiration Date Sophia Short Call (K=$50) Initial Short Stock Price (S) Payoff = -max (0,S-50) Call Premium Net Profit 25 $0.00 $5.20 $30.20 30 $0.00 $5.20 $35.20 35 $0.00 $5.20 $40.20 40 $0.00 $5.20 $15.20 45 $0.00 $5.20 $50.20 50 $0.00 $5.20 $55.20 55 ($5.00) $5.20 $55.20 60 ($10.00) $5.20 $55.20 65 ($15.00) $5.20 $55.20 70 ($20.00) $5.20 $55.20 75 ($25.00) $5.20 $55.20 b. For each of the three hedge portfolios, graph the expiration date value of her combined position on the vertical axis, with potential expiration date share prices of Sophia stock on the horizontal axis. c. Assuming that the options are priced fairly, use the concept of put-call parity to calculate the zero-value contract price (i.e., FO,T) for a forward agreement on Sophia stock. Explain why this value differs from the $50 contract price used in Part a and Part b. Expiration Date Expiration Date Initial Combined Terminal Sophia Stock Price Derivative Payoff Derivative Premium Position Value 25 30 35 40 45 50 55 60 65 70 75 I got this totally wrong. Here is the solution, but I do not understand how to arrive at the answer. Could you please show to arrive at the solution