An investor pay a premium of 10 cents per bushel for a corn put option with a strike price of $3.60.
(1) Under what circumstances (range of futures prices at expiration) will the option be exercised?
(2) What is the breakeven price of this position?
(3) Write down the payoff functions when the futures price at maturiy is above and below the strike price.
(4) Draw a diagram showing the variation of the investor’s profit (including premium) with the futures price at the maturity of the option.