Question: ROBLEMS In the following problems, if the effective annual interest rate is r, a $1 investment yields 1+r after 1 year. 2.1 Suppose XYZ stock

ROBLEMS In the following problems, if the "effective annual interest rate"

ROBLEMS In the following problems, if the "effective annual interest rate" is r, a $1 investment yields 1+r after 1 year. 2.1 Suppose XYZ stock has a price of $50 and pays no dividends. The effective annual interest rate is 10%. Draw payoff and profit diagrams for a long position in the stock. Verify that profit is 0 at a price in 1 year of $55. 2.2 Using the same information as the previous question, draw payoff and profit diagrams for a short position in the stock. Verify that profit is 0 at a price in 1 year of $55

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