Question 5 (1) Explain, using diagrams or otherwise the two components of the value of a call option and explain how this value changes when the underlying asset price changes. (5 marks) An investor has the option of investing in call options for 3 assets A, B & C. The three assets are currently valued at 100 each. The strike price in one years' time is 118 for all three assets. The investment return for the next 12 months is as follows Asset A Asset B Return over Uniform between Normally distributed the next 12 0% and 20% mean 10%, months standard deviation 2% Asset C Binary outcome with a 50% chance of losing 100% and a 50% chance of doubling in value Rank the price of the call options for the above 3 assets. Support any of your reasons with approximate calculations. (8 marks)