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Stock XYZ has the following characteristics: The current stock price is 40. The price of a 35-strike 1-year European call option is 9.12. The price
Stock XYZ has the following characteristics: The current stock price is 40. The price of a 35-strike 1-year European call option is 9.12. The price of a 45-strike 1-year European call option is 4.08. a The annual continuously compounded interest rate is 5%. Let S be the price of the stock one year from now. (a) Write down the profit function in terms of S for a long 35-strike call and a 45-strike call. (b) Find the range for S such that a long 45-strike call produces a higher profit than a long 35-strike call
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