(Answered) Question consider a bear spread an investor takes a short

Finance

Question: Consider a bear spread. An investor takes a short position in a futures denoted by x_t. But he or she thinks that x_t will not fall below a level x_min.

a. How would you create a position that trades off gains beyond a certain level against large losses if x_t increases above what is expected?

b. How much would you pay for this position?

c. What is the maximum gain? What is the maximum loss?

d. Show your answers in an appropriate figure.

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