Consider a box spread consisting of options with exercise prices of 75 and 85. The call prices
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Consider a box spread consisting of options with exercise prices of 75 and 85. The call prices are 16.02 and 12.28 for exercise prices of 75 and 85, respectively. The put prices are 9.72 and 15.18 for exercise prices of 75 and 85, respectively. The options expire in six months and the discrete risk-free rate is 5.13%.
A. Determine the value of the box spread and the profit for any value of the underlying at expiration.
B. Show that this box spread is priced such that an attractive opportunity is available.
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