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What is the higher profit

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Consider buying the call option with strike price K = 60 euro with maturity date in one month i.e T =0.5, which costs 10 euros. Assume that the interest rate is zero.

Question 1: Draw a payoff and profit diagram.

Question 2: Is your possible profit bounded? If so, what is the higher profit? if no, what behaviour of the underlying stock leads to profit increasing without any bound?

Question 3: Assume that the price of the underlying asset at maturity is 65 euros. Does your position lead to positive profit or to a loss?

Question 4: Determine all the prices of the underlying asset at expiration, for which the positive profit is achieved.

Reference no: EM132604588

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