Generate the payoff and profit function

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Options trading:

At time = 0, the price of Company A stock is 40. Suppose the annual effective interest rate is 5% and we are given the following call and put option prices for a set of exercise prices:

Exercise Price Call Option Price Put Option Price

30 12.92 1.50

34 10.32 2.79

38 8.12 4.32

40 7.18 5.28

43 6.34 6.34

46 4.90 8.72

50 3.78 11.40

1) Generate the payoff and profit function associated with a protective put that has an exercise price of 50.

2) Describe the payoff and profit at time 1 associated with a bull spread that consist of a long call with strike price 42, and a short call with strike price 50.

Please include an references and diagrams

Reference no: EM133004123

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