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(A) Mr. Black has decided to combine a bull spread with strike prices K1 and 2 K , and a bear put spread with the

(A) Mr. Black has decided to combine a bull spread with strike prices K1 and 2 K , and a bear put spread with the same two strike prices.

(i) What kind of a spread can he create?

(ii) Obtain the payoff for this spread, by constructing the payoff table.

(iii) What should be the present value of this payoff?

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