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1. (12 points) An investeor buys a ratio spread of 1-year European calls. He buys 1 call option with strike price 40 and sell 2
1. (12 points) An investeor buys a ratio spread of 1-year European calls. He buys 1 call option with strike price 40 and sell 2 call options with strike price 50. Option prices are (Strike price, Call option premium) = (40, 10), (50,5) (a) (6 points) Draw its profit plot. Formulas and explains regarding your plot are required. (b) (6 points) Determine the investor's profit if the end price of the underlying stock is 45, 55, 65. (2 + 2 + 2 points)
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