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  3. an investor buys a european put on a share of $4.

An investor buys a European put on a share of $4. The stock price is...

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Question

Finance

An investor buys a European put on a share of $4. The stock price is $45 and the strike price is $42. Fill the table and answer. (25 points)

Stock price (ST) in the market

$30

$35

$40

$42

$45

$50

$55

Option value (Pay off)

Premium

Profit

a) Under what circumstances does the investor make a profit?

b) Under what circumstances will the option be exercised?

c) What is the maximum profit an investor can make if he/she buys this put option?

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