Finance assignment

A call with a strike price of $100 costs $6. A put with a strike price of 90 and the same maturity costs $4. Both will mature in three months. A trader buys both the call and the put simultaneously.

1. Present the profit/loss at maturity from this strategy in the following table.

		Stock Price at Maturity, ST
		ST < 90	90 ST 100	ST > 100
1	Payoff from the call (excluding premium)
2	Payoff from the put (excluding premium)
3	Net profit (including premium)

2. Draw a diagram to show the variation of the profit with the stock price at maturity.

3. For what range of stock prices would the strategy lead to a profit? Explain when the trader should use this strategy.