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financial markets and institution

Question 3: 5 marks The diagram below is a European call option on stock with strike price (K)= $65, initial cost-$5 and option life of 12 months. Explain in details whether the holder of this option will exercise his option and achieve net profit knowing that the profit is the final payoff minus the initial cost=ST - K-premium, when: 1- The market price of the underlying stock (Sr) reaches ($72) at maturity date of the option? 2- The market price of the underlying stock (S) reaches ($64) at maturity date of the option? 15 10 Profit ($) oth 50 55 80 65 70 75 80 St=Stock Prices