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If the put options on a stock with strike prices $18 and $20 cost $2 and $3.50, respectively. The two options can be used to
If the put options on a stock with strike prices $18 and $20 cost $2 and $3.50, respectively. The two options can be used to create a bull spread if an investor buys the __(a)__ ($18 put or $20 put) and sell the __(b)__ ($18 put or $20 put). This strategy gives rise to an initial cash _____(c)_____ (inflow or outflow) of $___(d)___.
Stock Price | Payoff | Profit |
ST 20 | (e) | (h) |
18 ST 20 | (f) | (i) |
ST 18 | (g) | (j) |
Provide the information that is missing in the question in order.
(10 marks)
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