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Question 1 of 3
1. Question
A financial institution holds 2 positions in a binary option on a particular stock. Position A: A long position in a asset – or – nothing call with a strike price of $100 and the current stock price is $50. Position B: a short position on a cash – or – nothing call with a strike price of $70 and a payoff of $100. What’s the payoff from the combination of these two positions if the stock was priced at $150 at maturity?
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Question 2 of 3
2. Question
A trader is expecting the price of a particular stock to drop in 3 months and planning to take 2 positions on the same stock. The current stock price is $350. Position A: A long position in a 3 month cash – or – nothing put with a payoff equivalent to $200 Position B: A short position on a 3 month asset – or – nothing put with a strike price of $200 What’s the payoff from the combination of these two positions if the stock price dropped to $80 at the end of 3 months.
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Question 3 of 3
3. Question
A 3 month Asian call option on stock X with a strike price of $118 had the following price observations over the duration of the option (100,120,80,96,122,84,78) and at maturity stock X was valued at $130. what is the maximum payoff of a average price call & a average strike call?
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