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7. [9 marks] Assume that the effective 6-month interest rate is 2%. and use these premiums for S&R European options with 6 months to expiration.

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7. [9 marks] Assume that the effective 6-month interest rate is 2%. and use these premiums for S&R European options with 6 months to expiration. Strike Call Put 950 $120.405 $51.777 1000 93.809 74.201 Consider the position consisting in buying three 1000-strike put options and selling two 950- strike call options. a) Draw the payoff diagram for this position. b) What is the initial cost of this position? c) Will we have a positive profit if the spot price at expiration is $980? Explain

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