Suppose that a European call option to buy a Twitter share for $30 cost $2 and is held until maturity.

a)When will the holder of the option make aprofit?

b)When will the option beexercised?

c)Draw a clearly labelled diagram illustrating how the profit from a long position in the option depends on the stock price at maturity of theoption.

The following table lists option prices on Rio Tinto as of 01/08/18 from NYSE. The stock closed at $55.50.

Calls Contract Expiry Strike Bid Ask 19/10/18 37.50 16.30 16.80 19/10/18 42.50 12.40 12.80 19/10/18 45.00 10.00 10.30 19/10/18 47.50 7.60 7.90 19/10/18 50.00 5.50 5.70 19/10/18 52.50 3.70 4.00 19/10/18 55.00 2.20 2.60 19/10/18 57.50 1.15 1.70 19/10/18 60.00 0.50 0.85 19/10/18 62.50 0.20 0.45 19/10/18 65.00 0.20 0.30 19/10/18 67.50 0.05 0.15 19/10/18 70.00 0.30 0.10 19/10/18 75.00 0.00 0.05 Puts Contract Expiry Strike Bid Ask 19/10/18 35.00 0.40 0.15 19/10/18 37.50 0.05 0.20 19/10/18 40.00 0.15 0.25 19/10/18 42.50 0.25 0.35 19/10/18 45.00 0.40 0.50 19/10/18 47.50 0.55 0.70 19/10/18 50.00 0.80 1.20 19/10/18 52.50 2.05 2.20 19/10/18 55.00 3.20 3.40 19/10/18 57.50 4.70 5.00 19/10/18 60.00 6.60 6.80 19/10/18 62.50 7.50 8.60 19/10/18 65.00 12.10 12.50 19/10/18 67.50 13.10 13.80 19/10/18 70.00 15.90 16.30 19/10/18 75.00 20.90 21.20 19/10/18 80.00 25.70 26.30