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What circumstances the option will be exercised

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Bill works at Morgan Bank. Bill shorts a European put option on a share with the strike price of $70. The option costs $9 and it is held until maturity.

Problem (a) Explain under what circumstances the option will be exercised.

Problem (b) Also explain under what circumstances Morgan Bank will make a profit.

Problem (c) What does this trading strategy called? What are risks associated with this trading strategy for the Bank?

Reference no: EM132752974

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