13. Suppose the stock price is $40 and the effective annual interest rate is 8%. a. Draw...
Question:
13. Suppose the stock price is $40 and the effective annual interest rate is 8%.
a. Draw on a single graph payoff and profit diagrams for the following options:
(i) 35-strike call with a premium of $9.12.
(ii) 40-strike call with a premium of $6.22.
(iii) 45-strike call with a premium of $4.08.
b. Consider your payoff diagram with all three options graphed together. Intuitively, why should the option premium decrease with the strike price?
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Related Book For
Derivatives Markets Pearson New International Edition
ISBN: 978-1292021256
3rd Edition
Authors: Robert L. Mcdonald
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