Consider two put options on a bond selling for $92 per $100 par. One put has an
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Consider two put options on a bond selling for $92 per $100 par. One put has an exercise price of $85 and is selling for $3. The other put has an exercise price of $95 and is selling for $11. Both puts expire at the same time. Answer the following questions about a bear spread:
A. Determine the value at expiration and the profit under the following outcomes:
i. The price of the bond at expiration is $98.
ii. The price of the bond at expiration is $91.
iii. The price of the bond at expiration is $82.
B. Determine the following:
i. the maximum profit.
ii. the maximum loss.
C. Determine the breakeven bond price at expiration.
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