Question: Consider a box spread consisting of options with exercise prices of 75 and 85. The call prices are 16.02 and 12.28 for exercise prices of

Consider a box spread consisting of options with exercise prices of 75 and 85. The call prices are 16.02 and 12.28 for exercise prices of 75 and 85, respectively. The put prices are 9.72 and 15.18 for exercise prices of 75 and 85, respectively. The options expire in six months and the discrete risk-free rate is 5.13 percent.

A. Determine the profit of the box spread for any value of the underlying at expiration.

B. Show that this box spread is priced such that an attractive opportunity is available by explaining the cost of the box spread and the present value of the payoff of the Box spread.

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