Combination of long call and short call on the same stock

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Reference no: EM131960039

1. Which of the following statements is CORRECT?

a. Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.

b. The preferred stock of a given firm is generally less risky to investors than the same firm’s common stock.

c. Corporations cannot buy the preferred stocks of other corporations.

d. Preferred dividends are not generally cumulative.

e. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

2. You currently have a position on a spread, which is a combination of a long call and a short call on the same stock. The excise price is $30 for the long call and $40 for the short call. You paid a premium of $2 for the long call and received a premium of $1 for the short call. Both options have the same expiration date.If the stock price is $45, what is your net income?

a. $9

b. $8

c. $4

d. $10

e. $12

Reference no: EM131960039

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