In mid$-$May, there are two outstanding call option contracts available on the stock of ARB Co$.$:

Call # Exercise Price Expiration Date Market Price

$1$ $$52$ August $19$ $$8\mathrm{.}70$

$260$ August $193\mathrm{.}46$

Assuming that you form a portfolio consisting of one Call #$1$ held long and two Calls #$2$ held short, complete the following table showing your intermediate steps. In calculating net profit, be sure to include the net initial cost of the options. Do not round intermediate calculations. Round your answers to the nearest cent. Use a minus sign to enter negative values, if any. If the answer is zero, enter $"0".$

Price of ARB

Stock at Expiration $($$$)$ Initial Cost Payoff on Call #$1$

Position Payoff on Call #$2$

Position Net Profit on

Total Position

$40-$$$1\mathrm{.}78$ $ $ $

$45-$$$1\mathrm{.}78$ $ $ $

$50-$$$1\mathrm{.}78$ $ $ $

$55-$$$1\mathrm{.}78$ $ $ $

$60-$$$1\mathrm{.}78$ $ $ $

$65-$$$1\mathrm{.}78$ $ $ $

$70-$$$1\mathrm{.}78$ $ $ $

$75-$$$1\mathrm{.}78$ $ $ $

Choose the correct graph the net profit relationship in Part a$,$ using stock price on the horizontal axis.

The correct graph is $.$

A$.$

B$.$

C$.$

D$.$

What are the breakeven stock prices? What is the point of maximum profit? Do not round intermediate calculations. Round your answers to the nearest cent.

The first breakeven point: $

The second breakeven point: $

The point of maximum profit: $

Under what market conditions will this strategy $($which is known as a call ratio spread$)$ generally make sense? Does the holder of this position have limited or unlimited liability?

The user of this position is betting on volatility. The holder has liability for substantial price declines and liability for substantial price increases.