Question

Problem 1. [12 pts. Assume that you have purchased a call option with a strike price of S66.0. The option will expire in exactly 6 months' time. When you originally bought the option, you paid S5.0. (Show vour calculations) a. b. Draw a payoff diagram showing the payoff at expiration as a function of the stock price at If the stock is trading at $56 in six months, what will your payoff be? What will your profit be? If the stock is trading at $76 in six months, what will your payoff be? What will your profit be? expiration Redo c), but instead of showing payoffs, show profits. d.

Answer 1

1) Payoff will be max(0,stock - strike price). So if stock is less than strike price, it will be 0

2) payoff will be 76-66 = $10

C and D are done in the image attached