Assume that an investor buys a Microsoft three‐month call with an exercise price of $50. The payoff for the call at expiration is a function of the stock price at that time. For example, at expiration the value of the call relative to various possible stock prices would be calculated as in the following partial set of prices:

Transcribed Image Text:

Microsoft stock price at expiration Microsoft call price at expiration $40 45 50 55 $0 0 0 5 60 10