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Suppose you have purchased a European put on a share for $4. The share price is $51 and the strike on the put is $48.

Suppose you have purchased a European put on a share for $4. The share price is $51 and the strike on the put is $48. Under which circumstances will you earn a profit? Under what circumstances will the put be exercised? Draw a diagram of the variation in your profit as it changes with the underlying stock price at maturity.

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