The current price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted at $2 and the price of a one-year European call option on the stock with a strike price of $50 is quoted at $3.

a) Investor A is bullish on the stock and buys 100 shares. Compute his dollar profit and return if the share price is $25, $42, or $56 in one year.

b) Suppose investor A buys the call option on 100 shares instead. Compute his dollar profit and return if the share price is $25, $42, or $56 in one year. Compare buying stock versus buying call option in terms of risk and reward.

c) Investor B is bearish on the stock and shorts 100 shares. Compute his dollar profit and return if the share price is $25, $42, or $56 in one year. Assume that he needs to post 50% cash margin when he initiates the short position (and assume there is no margin call).

d) Suppose investor B buys the put option on 100 shares instead. Compute his dollar profit and return if the share price is $25, $42, or $56 in one year. Compare shorting stocks versus buying put option in terms of risk and reward.