Acme Jewelers is a custom silversmith.Silver is their primary input, making their exposure to silver prices 1 for 1: for every dollar increase in the price of silver, Acme's earnings decrease by one dollar.Suppose, too, that silver's current spot price is $34/oz. and that a call option on silver with a $34 strike price is available at a premium of $2/oz.

a.Plot the change in Acme's earnings as the price of silver varies between $24/oz. and $44/oz.Put the price of silver on the x-axis and the change in Acme's earnings on the y-axis.

b.On the same graph, plot the profits (payoffs less premiums) on the silver call.

c.Finally, on the same graph, plot the change in Acme's earnings after it purchases the silver call against the price of silver.