The current price of one share of stock is 70.00. The stock pays no dividends. The...
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The current price of one share of stock is 70.00. The stock pays no dividends. The riskfree rate is 3%. One year call and put options on the stock are available for various strike prices. Mr. Smith observes the following prices of the one year options: Strike Price K Kz Call Option 6.50 2.00 Put Option 1.03463 3.32775 Smith buys a call spread consisting of one long call with a strike price of Ki and one short call with a strike price of K2. (K2> K1). a. What is the maximum possible payoff of Smith's portfolio? b. What is the minimum profit of Smith's portfolio? The current price of one share of stock is 70.00. The stock pays no dividends. The riskfree rate is 3%. One year call and put options on the stock are available for various strike prices. Mr. Smith observes the following prices of the one year options: Strike Price K Kz Call Option 6.50 2.00 Put Option 1.03463 3.32775 Smith buys a call spread consisting of one long call with a strike price of Ki and one short call with a strike price of K2. (K2> K1). a. What is the maximum possible payoff of Smith's portfolio? b. What is the minimum profit of Smith's portfolio?
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