You buy a call with a strike price of $33 and sell an identical put. The call has a premium of $8.76 and the put has a premium of $5.58. You also sell a call with a strike price of $36 and buy an identical put. This call has a premium of $7.66 and this put has a premium of $7.24. The risk-free rate in the economy is 3.93%. All 4 options are written on the same underlying asset and expire in exactly one year. If the primary asset is worth $37.19 when the options all expire, what is your net percentage return? Take your answer out to four decimals - for example, write 4.24% as .0424. Answer: .9493 X This set of trades is known as a box spread, which is a long position that gives the same net payoff regardless of where the price of the underlying ends up. In other words, it's a risk-free investment. If nothing is mispriced then the rate of return on the box spread will equal the risk-free rate. Here the rate of return almost certainly does NOT equal the risk-free rate. If you can get a higher return using a box spread than you could from just buying treasuries, then the box spread becomes a form of arbitrage. If you get a lower rate of return from the box spread than from treasuries, then you'd do a short box spread and thus borrow at less than the risk-free rate, which also qualifies as arbitrage. To get the % return on your box spread here, just divide the net payoff (in dollars and cents) by the net amount of the original investment. Alternatively, you can find the ending values of all of the options and calculate the ending value of the portfolio and then do (ending value - beginning value) / beginning value. The correct answer is: 0.0870