European call option on Sunny Resorts Inc (SRI) has a strike price of $40 and exercise...

European call option on Sunny Resorts Inc (SRI) has a strike price of $40 and exercise date of three months.

a)With respect to the buyer of the call option, draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration.

b)With respect to the seller of the call option, draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration

Question 2: Put Option

A European put option on Sunny Resorts Inc (SRI) has a strike price of $40 and exercise date of three months.

a)With respect to the buyer of the put option, draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.

b)With respect to the seller of the put option, draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.

Question 3 Option Premiums

Sunny Resorts Inc (SRI) stock is trading today at $50 per share.There are multiple European options on SRI, which all have an exercise date of three months.

a)The first call option has the strike price of $45, whereas, a second call option has the strike price of $55.What can you conclude about the premium of each of the call options?

b)The first put option has the strike price of $45, whereas, a second put option has a strike price of $55. What can you conclude about the premium of each of the put options

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Expert Solution

question 2:

jeff jeffy answered 1 year ago

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