Consider an options strategy where one buys a call with strike 60 and sells a call with a strike 80. Tht time to expiration is 3 months and the effective 3 months interest rate is 1.5%

a. Draw the payoff diagram of the strategy, marking off the important numbers such as the intercept and the maximum gain or loss values

b. Using the diagram explain why there would be an arbitrage if the premiums on the 2 options were equal

c. If the cost of the 1st option is 40 and the second option is 37, then draw the profit diagram, again marking off all important values.