The current price of stock ABC is 40. Stock ABC pays dividends continuously at a rate proportional
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The current price of stock ABC is 40. Stock ABC pays dividends continuously at a rate proportional to its price. The dividend yield is 3%. The continuously compounded risk-free interest rate is 6%.
The following table shows the premiums of two-year put options on stock ABC of various strike prices:
Let S(2) be the price of stock ABC two years from now.
Determine the range of values of S(2) for which a 35-45 long bull spread outperforms a 40-strike long straddle, both of which are on stock ABC and expire in two years.
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