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7. The current price of one share of stock is 70.00. The stock pays no dividends. The risk-free rate is 3%. One year call and
7. The current price of one share of stock is 70.00. The stock pays no dividends. The risk-free rate is 3%. One year call and put options on the stock are available for various strike prices. Mr. Smith observes the following prices of the one year options:
The current price of one share of stock is 70.00. The stock pays no dividends. The risk-free rate is 3%. One year call and put options on the stock are available for various strike prices. Mr. Smith observes the following prices of the one year options: Call with strike price K1=6.50 Call with strike price K2=2.00 Put with strike price K1=1.03463 Put with strike price K2=3.32775 Smith buys a call spread consisting of one long call with a strike price of K1 and one short call with a strike price of K2.(K2>K1). a. What is the maximum possible payoff of Smith's portfolio? b. What is the minimum profit of Smith's portfolioStep by Step Solution
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