Question: Question 7: 8 marks The diagram below represents the payoff of a European call option on stock with strike price (K)= $100, initial cost (option

Question 7: 8 marks The diagram below represents the payoff of

Question 7: 8 marks The diagram below represents the payoff of a European call option on stock with strike price (K)= $100, initial cost (option premium) =$10 and option life of 6 months. The market price of the underlying stock reaches ($115) at maturity date of the option, explain in details whether the holder of this option will exercise his option and achieve profit knowing that the profit is the final payoffminus the initial cost? 30 20 Profit ($) 10 K=$100 70 80 90 100 110 120 130 S7 = stock price $ -10

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