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Question 1: Read about bull spreads. (See pages 258-259, Hull 9th edition). Call options that expire in four months are available at strike prices at
Question 1: Read about bull spreads. (See pages 258-259, Hull 9th edition). Call options that expire in four months are available at strike prices at $5 increments (50, 55, 60, and so on) from a strike price of 50 to a strike of 120. See the table below. The current stock price is 65 You are very confident that in four months the price of this stock will be greater than 75. So you are long (buy) a call with an exercise price of S65 and short (sell) another call option with an exercise price of $75. Call option prices are as follows
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