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 $51 August 19 $8.20

2 60 August 19 3.12

Assuming that you form a portfolio consisting ofoneCall #1 held long andtwoCalls #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 Profit on Call #1 Profit on Call #2 Net Profit on

Stock at Expiration ($) Position Position Total Position

40 $ $ $

45

50

55

60

65

70

75

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

The user of this position is betting on-Select-

low

high

Item 29

volatility. The holder has-Select-

limited

unlimited

Item 30

liability for substantial price declines and-Select-

limited

unlimited

Item 31

liability for substantial price increases.