7. On November 18, three call options on Eden Prairie Associates stock, all expiring in December, sold for the following prices:

Firpo Marberry is considering a "butterfly spread" that involves the following positions:
Buy 1 call at $50 exercise price.
Sell (write) 2 calls at $60 exercise price.
Buy 1 call at $70 exercise price.

a. What would be the values at expiration of Firpo's spread if Eden Prairie Associates'
stock price is below S50? Between $50 and $60? Between $60 and $70? Above $70?

b. What dollar investment would be required of Firpo to establish the spread?

Transcribed Image Text:

Exercise Price $50 60 70 Option Price $7- 3