# Question

For each entry in Table 2.5, explain the circumstances in which the maximum gain or loss occurs.

## Answer to relevant Questions

Suppose the stock price is $40 and the effective annual interest rate is 8%. a. Draw on a single graph payoff and profit diagrams for the following options: (i) 35-strike call with a premium of $9.12. (ii) 40-strike call ...What position is the opposite of a purchased call? The opposite of a purchased put? Suppose that you buy the S&R index for $1000, buy a 1000-strike put, and borrow $980.39. Perform a payoff and profit calculation mimicking Table 3.1. Graph the resulting payoff and profit diagrams for the combined position. Construct an asymmetric butterfly using the 950-, 1020-, and 1050-strike options. How many of each option do you hold? Draw a profit diagram for the position. Verify that you earn the same profit and payoff by (a) Shorting the S&R index for $1000 and (b) Selling a 1050-strike S&R call, buying a 1050-strike put, and borrowing $1029.41.Post your question

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