Curley buys a one-year 50-strike European call option from Moe for a premium of $7.43 The risk-free interest rate is 6.5% effective.

1. For what spot price at expiration is Moe' profit 0?

2. Same setup as in the previous question, now with put options:

(a) Draw - in the same graph - the profit diagrams for the following one-year pot options:

1. A 35-strike put with a premium of 1.53.

2. A 40-strike put with a premium of 3.26.

3. A 45-strike put with a premium of 5.75.

(b) Intuitively, why would we expect the option premium to increase in the strike price?