3. The following prices are available for call and put options on a stock priced at...

 

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3. The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices. Calls Puts Strike March June March June 45 6.84 8.41 1.18 2.09 50 3.82 5.58 3.08 4.13 55 1.89 3.54 6.08 6.93 Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated. For questions 1 through 6, consider a bull money spread using the March 45/50 calls. i. How much will the spread cost? ii. What is the maximum profit on the spread? iii. What is the maximum loss on the spread? iv. What is the profit if the stock price at expiration is $47? v. What is the breakeven point? 3. The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices. Calls Puts Strike March June March June 45 6.84 8.41 1.18 2.09 50 3.82 5.58 3.08 4.13 55 1.89 3.54 6.08 6.93 Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated. For questions 1 through 6, consider a bull money spread using the March 45/50 calls. i. How much will the spread cost? ii. What is the maximum profit on the spread? iii. What is the maximum loss on the spread? iv. What is the profit if the stock price at expiration is $47? v. What is the breakeven point?

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