Ms. Higden has been offered yet another incentive scheme (see Section 21-2). She will receive a bonus of $500,000 if the share price at the end of the year is $120 or more; otherwise she will receive nothing. Don't ask why anyone should want to offer such an arrangement. Maybe there's some tax angle.)

1. Draw a payoff diagram illustrating the payoffs from such a scheme.
2. What combination of options would provide these payoffs? (Hint: You need to buy a large number of options with one exercise price and sell a similar number with a different exercise price.)