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What is the payoff function of the portfolio

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An investor bought a European call on a stock with strike price of $100. The price of the call with strike price of $100 is $3. At the same time the investor wrote a European call on the same stock with strike price of $120. The price of the call with strike price of $120 is $0.25.

(a) What is the payoff function of the portfolio? (Hint: the payoff function is a function of the stock price at expiration time)

(b) Draw a diagram for the payoff function against stock price at expiration time.

(c) What is the profit function of the portfolio? (Hint: the profit function is a function of the stock price at expiration time)

(d) Draw a diagram for the profit function against the stock price at the expiration time.

Reference no: EM132692259

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