Question
The price of a stock is $36 and the price of a three month European call option on the stock with a strike price of
The price of a stock is $36 and the price of a three month European call option on the stock with a strike price of $36 is $3.60. Investor A buys one share of the stock. Investor B buys one call option. Investor C sells one call option. At the maturity of the option, a) at what stock price will investor A do equally well as investor B in term of net profit?
b)at what stock price will investor A do equally well as investor C?
c)at what stock price will investor B do equally well as investor C?
Hints: (1) please ignore the time value of money; (2) you may find it helpful to draw a profit diagram.
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