: Suppose that price of gold is AED4100/ounce on October 20, 2012. Rado Watch Company (RWC) enters into May, 2013 European option contract to BUY 1 ounce of gold from Julian Mines at AED4120/ounce at a premium of AED 10. Suppose that on May 30, 2013 the price of the gold is AED4200/ounce. 9. From the above information, can we say that the contract/agreement is a financial asset? 10. What kind of option is it? 11. Who is the long/short position holder in this option? 12. What is option premium? Who is paying option premium and why? 13. What will be the Break-even point? (for call K+F, for Put K-f) 14. Will RWC exercise the option? Why or why not? 15. If RWC exercise the option, what would be its terminal pay off? 16. Suppose in May, 2013 the price of 1 ounce of gold is AED4118. Will RWC exercise the option? What would be its terminal pay off? 17. If RWC does not exercise the option, what would be its pay off? 18. Who will loose at maturity date? 19. What will be the terminal pay off for long and short positions if price of gold on May 30, 2013 is AED4140/ounce or AED4160/ounce or AED4180/ounce or AED4100/ounce or AED4080/ounce or AED4060/ounce 20. Draw the terminal pay off graph for long and short positions and show the net position as well