1. Determine which of the following strategies creates a ratio spread, assuming all options are European. A. Buy a one-year call, and sell a three-year call with the same strike price. B. Buy a one-year call, and sell a three-year call with a different strike price. C. Buy a one-year call, and buy three one-year calls with a different strike price. D. Buy a one-year call, and sell three one-year puts with a different strike price. E. Buy a one-year call, and sell three one-year calls with a different strike price. 2. Determine which statement about zero-cost purchased collars is FALSE. (You should assume that the current price of the stock is less than the forward price.) A. A zero-width, zero-cost collar can be created by setting both the put and call strike prices at the forward price. B. There are an infinite number of zero-cost collars. C. The put option can be at-the-money. D. The call option can be at-the-money. E. The strike price on the put option must be at or below the forward price. 3. Happy Jalapenos, LLC has an exclusive contract to supply jalapeno peppers to the organizers of the annual jalapeno eating contest. The contract states that the contest organizers will take delivery of 10,000 jalapenos in one year at the market price. It will cost Happy Jalapenos 1,000 to provide 10,000 jalapenos and today's market price is 0.12 for one jalapeno. The continuously compounded annual risk-free interest rate is 6\%. Happy Jalapenos has decided to hedge as follows: Buy 10,000 0.12-strike put options for 84.30 and sell 10,000 0.14-strike call options for 74.80. Both options are one-year European. Happy Jalapenos believes the market price in one year will be somewhere between 0.10 and 0.15 per jalapeno. Determine which of the following intervals represents the range of possible profit one year from now for Happy Jalapenos. A. 200 to 100 B. 110 to 190 C. 100 to 200 D. 190 to 390 E. 200 to 400