10. What are the answers to 9a and be if on the day the option expires, the price of oil is $36.25 per barrel?

Q9. 9. A firm owns a put option on 10,000 barrels of oil with a strike price of $37.50 per barrel. a. Does the firm exercise the option if on the day the option expires the price of oil is $40 per barrel? b. What is the cash flow on the day the option expires if the price of oil is $40 per barrel?

A9. Ans: It's a Put option that means option to sell the assets on the mutually agreed price, here since the strike price is $37.50 which is lessor than the market price of $40, hence The firm would not like to execrise the option since It can sell the assets in the amrket at $40 instead of selling it at $37.5 per barrel in the option, hence answer to the question

a) is the firm will/should not exercise the option on the day the option expires.

b) Cash flow of the option expires is 40*10000 - Premium paid for the opti