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1. (a) Suppose you think that the price of a stock will be lower for the next 3 months. Also, assume you have one unit of the stock. Since you can only short-sell a unit of the stock, what you can do to increase your exposure is to enter a long position in put options maturing in 3 months. At maturity when the price of the stock is indeed lower than the strike price, then you can exercise the option to incur income. Here is the payoff graph...

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