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1. Assume you have purchased a June call option on British pounds: the strike price is $1.55/; the option premium is $0.05/; and it is
1. Assume you have purchased a June call option on British pounds: the strike price is $1.55/; the option premium is $0.05/; and it is European style.
Please fill out the blanks in the table.
Spot rate at maturity (in June) | Exercise or not? | Net profit or payoff |
1.40 |
|
|
1.45 |
|
|
1.50 |
|
|
1.55 |
|
|
1.60 |
|
|
1.65 |
|
|
1.70 |
|
|
1.75 |
|
|
Where is the break-even point?
Please draw the payoff diagram to illustrate the payoff. Make sure to mark down the strike price, the break-even point, and the moneyness (in the money, at the money, and out of the money) on the diagram.
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