The 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 $7 and the price of a one-year European call option on the stock with a strike price of $50 is $5. a. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. Draw a diagram (to scale) illustrating how the investors profit or loss varies with the final stock price ($0 - $100). b. Clearly show the Profit / Loss using different graphs for each of the securities (for example --- for calls, -- -- -- for stock, ... for puts, and ____ for the overall payoff). Compute the Breakeven point(s) and clearly label these on the graph.

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