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Question: Assume that the risk free interest rates are zero. Consider an asset with spot price 50.

The values of the following options on this asset are given below:

Option Type Strike Maturity Value

Put 45 8 months $1.5

Put 56 8 months $7.25

Call 45 8 months $7.5

Call 56 8 months $2.25

(a) Synthesize a 45-56 bull spread using only the call options. Draw the P&L diagram at maturity of the bull spread.

(b) Synthesize a 45-56 bull spread using only the put options. Draw the P&L diagram at maturity of the bull spread.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92776965

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