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Question - Price of stock of company X at time 0 is 200; Annual effective interest is at rate 5%; European Call and Put option premiums for strike prices are given by the following table; Assume that the stock pays no dividends.
Strike
Call
Put
150
64.6
7.5
170
51.6
13.5
1. Determine the payoff and profit at time 1 of a bull spread: a purchased call with strike price 150 and a written call with strike price 170.
2. Determine the payoff and profit at time 1 of a bear spread: a written call with strike 150 and a purchased call with strike price 170.
3. Using put options, construct a bull spread with the same profit as in part 1.
4. Construct a box spread that has a certain payoff of 40 at time 1.
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