Question 3 [10 marks total] You wish to create a synthetic equity position. You believe that the price of the stock will decrease over the next year. You have the following securities available to you to create this position. Note that all options are European and XYZ Inc does not pay dividends. Current Value of Available Securities XYZ Inc. Equity Call Premium Put Premium Strike for Call or Put Call and Put Expiration Annual Risk-Free Rate (annually compounded) $20.00 $6.13 $0.70 $15.00 1 year 5% a) Confirm that put-call parity holds in this case. [2 mark] b) Specifically identify the transactions that you will enter into to create your position. [3 marks] c) At expiration, the value of the equity will have increased or decreased. Show how your synthetic position will have the same payoff as a stock only portfolio. Show this if XYZ's equity if the equity value increases to $100 or decreases to $5. [5 marks] Question 3 [10 marks total] You wish to create a synthetic equity position. You believe that the price of the stock will decrease over the next year. You have the following securities available to you to create this position. Note that all options are European and XYZ Inc does not pay dividends. Current Value of Available Securities XYZ Inc. Equity Call Premium Put Premium Strike for Call or Put Call and Put Expiration Annual Risk-Free Rate (annually compounded) $20.00 $6.13 $0.70 $15.00 1 year 5% a) Confirm that put-call parity holds in this case. [2 mark] b) Specifically identify the transactions that you will enter into to create your position. [3 marks] c) At expiration, the value of the equity will have increased or decreased. Show how your synthetic position will have the same payoff as a stock only portfolio. Show this if XYZ's equity if the equity value increases to $100 or decreases to $5. [5 marks]