our friend entered into some derivative contracts. She:

Bought one 1 year CME American call option on platinum at a strike price of $2000 per ounce for a premium of $300 per ounce per contract, then; Bought one 1 year CME futures contracts on platinum at a futures price of $1800 per ounce. The platinum spot price is $1600 per ounce.

The following questions relate to the derivatives together as a portfolio.

If you were to graph this portfolio as a profit diagram with the Y axis representing profit and the x axis representing the underlying gold price

Round all the answers to the nearest integer

i) Where on the x axis does the breakeven occur? (4 marks)

Answer: $Answer

ii) At what point on the x axis does the gradient change in the profit diagram (2 marks)

Answer: $Answer

iii) At what point on the y axis does the gradient change in the profit diagram (2 marks)

Answer: $Answer 1

iv) Prior to the gradient change what is the gradient of the profit diagram (2 marks)

Answer: Answer

v) After the gradient change what is the new gradient? (2 marks)

Answer: Answer

vi) At what point is the y axis intercepted (only write down the Y point) (2 Marks)

Answer: $Answer

vii) What is the maximum possible loss on this strategy? Answer as a positive number (1 Mark)

Answer: $Answer