For Each of the Following Option and Securities Combinations Show

question 26

Essay

For each of the following option and securities combinations show what the payoff would be when the option expires.Assume that each option has the same exercise price and expiration date.
a.Buy a call and invest the present value of the exercise price in a bank deposit.
b.Buy a share and a put option on the share.
c.Buy a share, buy a put option on the share, and sell a call option on the share.
d.Buy a call option and a put option on the share.
Consider options with exercise price of $100.Call the stock price at the expiration date S.

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Definitions:

Renewable Resource

A natural resource that can replenish itself over time through natural processes or through human intervention.

Oil

A natural fossil fuel used as a primary source of energy for heating, transport, and industrial processes.

Coal

A flammable black or dark brown sedimentary rock primarily utilized for energy production.

Iron Ore

A naturally occurring mineral from which iron (Fe) is extracted to make steel and various other products.