The payoffs to debtholders and shareholders are said to mimic the payoffs option-style securities. With this in mind - answer the following questions:

a)For a leveraged firm with debt of $100m that is due in 1 year - draw the payoff diagram for shareholders.

b)Does the payoff to shareholders incorporate the payoff to a call option or a put option and is the position long (a bought option) or short (an option that is sold)?

c)For the same firm - draw the payoff diagram for debtholders.

d)Does the payoff to debtholders incorporate the payoff to a call option or a put option and is the position long (a bought option) or short (an option that is sold)?

e)Draw the payoff diagram for the combined position for both shareholders and debtholders - and briefly describe what it illustrates.