Question: **Please provide a step-by-step solution, incl. definitions and calculations in Excel**: A bank decides to create a five-year principal-protected note on a non-dividend-paying stock by

**Please provide a step-by-step solution, incl. definitions and calculations in Excel**:

A bank decides to create a five-year principal-protected note on a non-dividend-paying stock by offering investors a zero-coupon bond plus a bull spread created from calls. The risk-free rate is 4% and the stock price volatility is 25%. The low strike price option in the bull spread is at the money. What is the maximum ratio of the higher strike price to the lower strike price in the bull spread? (Use the Black-Scholes option pricer)

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