1. An investor buys a European put on a share of $4. The stock price is $45 and the strike price is $42. Fill the table and answer. (25 points) Stock price (ST) in the market Option value (Pay off) Premium Profit $30 $35 $40 $42 $45 $50 $55 a) Under what circumstances does the investor make a profit? b) Under what circumstances will the option be exercised? c) What is the maximum profit an investor can make if he/she buys this put option?
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In this case, the strike price is $42. So, if the stock price is below $42, the investor will make a profit. Show more…
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