Question 3 (Basic Option Strategies) (4 marks) Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options). (a) What is your profit if you buy a call, hold it to expiration and the stock price at expiration is $37? (1 mark) (b) What is the breakeven stock price at expiration on the transaction in part (a)? Financial Risk Management Final Exam Semester V1 2021 -5- (c) (1 mark) Suppose the investor constructed a covered call. At expiration the stock price is $27. What is the investor's profit? (1 mark) What is the breakeven stock price at expiration for the transaction described in part (c)? (1 mark) (d) Question 3 (Basic Option Strategies) (4 marks) Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options). (a) What is your profit if you buy a call, hold it to expiration and the stock price at expiration is $37? (1 mark) (b) What is the breakeven stock price at expiration on the transaction in part (a)? Financial Risk Management Final Exam Semester V1 2021 -5- (c) (1 mark) Suppose the investor constructed a covered call. At expiration the stock price is $27. What is the investor's profit? (1 mark) What is the breakeven stock price at expiration for the transaction described in part (c)? (1 mark) (d)