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5. (a) Define an option. (a) Again, consider a one year European option with a strike price of K = 500 and suppose the spot

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5. (a) Define an option. (a) Again, consider a one year European option with a strike price of K = 500 and suppose the spot price at time T = 1 is St. Give the formula for the payoff for the buyer of the European call option and also the payoff of the European Put Option. [6]

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