The forward price of one share of QRT stock is $105. The annual risk-free interest rate is 5%. A European put option on one share of QRT stock with a strike price of $100 that expires in 1 year costs $7. Diane short-sells QRT stock that has a current price of $100. She also buys a European call option on QRT with a strike price of $100. Diane also shorts a European put option on QRT with a strike price of $90 for a premium of $2. Both options expire in 1 year. a) Graph Diane's profit b) What is Diane's profit if the QRT price is $85? c) What is Diane's profit if the QRT price is $105? Solution