Suppose the stock price is

$40

and the effective annual interest rate is

8%

.\ a. Draw on a single graph payoff and profit diagrams for the following options (the time to maturity is one year):\ i. 35-strike call with a premium of

$9.20

\ ii. 40-strike call with a preatium of

$6.25

\ iii. 45-strike call with a premium of

$4.08

\ b. Consider your payoff diagram with all three options graphed together. Intuitively, why should the option premium decrease with the strike price?

Suppose the stock price is $40 and the effective annual interest rate is 8%. a. Draw on a single graph payoff and profit diagrams for the following options (the time to maturity is one year): i. 35-strike call with a premium of $9.20 ii. 40-strike call with a preasium of $6.25 iii. 45 -strike call with a premium of $4.08 b. Consider your payoff diagram with all three options graphed together. Intuitively, why should the option premium decrease with the strike price? Suppose the stock price is $40 and the effective annual interest rate is 8%. a. Draw on a single graph payoff and profit diagrams for the following options (the time to maturity is one year): i. 35-strike call with a premium of $9.20 ii. 40-strike call with a preasium of $6.25 iii. 45 -strike call with a premium of $4.08 b. Consider your payoff diagram with all three options graphed together. Intuitively, why should the option premium decrease with the strike price