a) You've entered into a long forward. The forward has 1.25 years to expiration. The continuously compounded risk-free rate of interest is 3.5%. The forward price is $83.50. The underlying asset price...

a) You've entered into a long forward. The forward has 1.25 years to expiration. The continuously
compounded risk-free rate of interest is 3.5%. The forward price is $83.50. The underlying asset
price is $81.70. Show whether the forward contract is your asset or liability.


 b)Suppose that both a call option and a put option have been written on a stock with an exercise
price of $40. The current stock price is $42, and the call and put premiums are $3 and $0.75,
respectively. Draw fully labelled profit diagrams of a long call and a short put.


 c)For the same call and put options as in question (a), calculate the profit to positions of both the
short call and the long put with an expiration day stock price of $43.