The price of xyz stock is 50 the price of a one-year


The price of XYZ stock is $50. The price of a one-year European call option on this stock with a strike price of $55 is quoted as $3. Suppose that an investor buys 1 share of stock and shorts 1 call option. a) Draw a payoff diagram for the investor’s portfolio as function of the stock price at maturity. b) Draw a profit diagram illustrating how the investor’s profit or loss varies with the stock price at maturity. Include the results of the profit (specific values) at several price points. NOTE** this is a european call option.

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Financial Management: The price of xyz stock is 50 the price of a one-year
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