1. (10 points) Today's price of the Tesla, Inc. stock is So = $812. An investor who feels that the price of the Tesla stock will increase within the next 3 months is trying to decide between buying today (i) one share, or (ii) five 3-month European call options with strike price K = $850 which are currently selling for $100. Each call option gives the right to buy one share in T = 3 months at price K. (a) Provide the profit and loss of both strategies in T = 3 months as a function of the then prevailing Tesla stock price St. How high does Tesla's stock price St have to rise for strategy (i) to be profitable at time T? How high does Tesla's stock price Sy have to rise for the call option strategy (ii) to be profitable at time T? Sketch the graph of both functions and add suitable annotations. (b) How high does Tesla's stock price St have to rise for the call option strategy (ii) to be more profitable than strategy (i) at time T? (C) Suppose Tesla's stock price in three months will be St = $1,200 or Sr = $800, respec- tively. What is the corresponding P&L of both strategies? (d) Very briefly discuss the comparison of both strategies (advantages and disadvantages). 1. (10 points) Today's price of the Tesla, Inc. stock is So = $812. An investor who feels that the price of the Tesla stock will increase within the next 3 months is trying to decide between buying today (i) one share, or (ii) five 3-month European call options with strike price K = $850 which are currently selling for $100. Each call option gives the right to buy one share in T = 3 months at price K. (a) Provide the profit and loss of both strategies in T = 3 months as a function of the then prevailing Tesla stock price St. How high does Tesla's stock price St have to rise for strategy (i) to be profitable at time T? How high does Tesla's stock price Sy have to rise for the call option strategy (ii) to be profitable at time T? Sketch the graph of both functions and add suitable annotations. (b) How high does Tesla's stock price St have to rise for the call option strategy (ii) to be more profitable than strategy (i) at time T? (C) Suppose Tesla's stock price in three months will be St = $1,200 or Sr = $800, respec- tively. What is the corresponding P&L of both strategies? (d) Very briefly discuss the comparison of both strategies (advantages and disadvantages)