Answer: Long asset-or-nothing call

**Correct answer: A. Long asset-or-nothing call** A cash-or-nothing call with strike $30 and payout $30 can be replicated by: - **Short European call** with the same strike, plus - **Long asset-or-nothing call** ### Why this works - If the stock ends at **$40**: - Cash-or-nothing call pays **$30** - Short European call pays **-($40 - $30) = -$10** - Long asset-or-nothing call pays **$40** - Net: **-$10 + $40 = $30** - If the stock ends at **$20**: - Cash-or-nothing call pays **$0** - Short European call pays **$0** - Long asset-or-nothing call pays **$0** - Net: **$0** So the replication is exact.

Author: Manit Arora