# Graph PAYOFF function of Stock and to find Common Derivative

Question

XYZ stock is currently trading at \$100.  The one-year effective interest rate is 5% (\$1 lent today yields \$1.05 one year from now).  A one year put with strike price \$105 is priced at \$5.

1. Suppose you buy one put for \$5, buy one share for \$100, and borrow \$100. Graph the PAYOFF function for this position (i.e., 1 put + 1 share + \$100 borrowing).  Be sure to label the points, if any, where the graph intercepts the x-axis or y-axis.
2. What common derivative is the combination of investments (put+share+ borrowing) equivalent to? In the absence of arbitrage, what should be the price of this derivative if it were available?

### Comments

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