Draw payoff diagrams for each of the portfolios below (X = strike price). a. Buy a share

Question:

Draw payoff diagrams for each of the portfolios below (X = strike price).

a. Buy a share of stock and short a call with X = $35

b. Buy a risk-free zero-coupon bond with a face value of $35 and sell a put with X = $35.

c. Explain how these payoff diagrams relate to the concept of put-call parity.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...