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Consider the Put option on the Canada 6s of 2038 which expires (matures) in July 2021. Suppose the put premium for one contract on the bond was $1,240 for a strike price of $102,643 in March 2021, and the call premium for the same strike price was $1,220. If the Canada 6s of 2038 bond sold for $102,470 in July 2021, then:

Part 10: At price J of the Put underlying in Fig. B: (choose one option below)

The put is in the money and begins to behave exactly like a call option

The put is out of the money and both the buyer and the seller lose a slightly larger amount than 1240.

The put is in the money and the buyer ad the seller receive the same payoff.

The put is in the money and the buyer gains an amount exceeding 1240.

The put is in the money and the buyer approximately breaks even when the put premium is subtracted.

Part 11: Point L in Fig. A and point L in Fig. B are similar for the reason that: (choose one option below)

In both cases, the option is at the money and not exceeded.

In both cases, the option is not exercised because the buyer would experience a net loss.

In both cases, the expiry price of the underlying exceeds the break-even price.

In both cases, the option buyer exercises the option for a net loss.

Part 12: Point J in Fig. A and point J in Fig. B differ for the reason that: (choose one option below)

The put buyer loses more than the call buyer because the call loses are capped at 1220.

The call is exercised for a capped loss of 1220, but the put is excised for net zero profit.

The expiry price of the underlying is too low to create a net profit for the call buys but too high to create a net profit for the put buyer.

The call buyer incurs a net loss and the out buyer make a net profit.

Elg. A: Payoff from a Call Option Fig. B: Payoff from a Put Option Elg. A: Payoff from a Call Option Fig. B: Payoff from a Put Option

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