An investor bought a 70-strike European put option on an index with six months to expiration. The

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An investor bought a 70-strike European put option on an index with six months to expiration. The premium for this option was 1.

The investor also wrote an 80-strike European put option on the same index with six months to expiration. The premium for this option was 8.

The six-month interest rate is 0%.

Calculate the index price at expiration that will allow the investor to break even.

(A) 63

(B) 73

(C) 77

(D) 80

(E) 87

Payoff -(K - K) K K Slope = -1 S(T) Payoff K - K K Slope = -1 K2 S(T) FIGURE 3.3.2 Payoff diagram of K-K bear

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