Homework Answers
Lets the Strike price be K and Spot price be S
Payoff from buying Call
If
S<K , Payoff = 0
S>K, Payoff = S-K
Payoff from selling Put
If
S<K , Payoff = -(K-S)
S>K, Payoff = 0
Using this Strategy
Payoff will be
If
S<K , Payoff = -(K-S)
S>K, Payoff = S-K
This strategy is similar of Buying a stock by borrowing present value (PV)
Payoff from Stock
S<K , Payoff = -(K-S)
S>K, Payoff = S-K
Answer is 3
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