Financial markets and institutions

Part III Problems [20 marks] 1. Suppose that you buy an alternative call option with the following terms: The underlying asset is five units of Asset 1 or five unit of Asset 2. The strike price for one unit of Asset 1 is K1000. . The strike price for one unit of Asset 2 is K780. . The expiration date is four months from now. . The option can only be exercised at the expiration date. a. What is the payoff from this option if at the expiration date the price of one unit of Asset 1 is K1250 and the price of Asset 2 is K980? What is the underlying decision? b. What is the payoff from this option if at the expiration date the price of one unit of Asset 1 is K900 and the price of Asset 2 is K820? What is the underlying decision? c. What is the payoff from this option if at the expiration date the price of Asset 1 is K850 and the price of Asset Ris K 780? What is the underlying decision? 1000 11.47