Construct a bull spread using the calls

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The stock is trading today at $120 a share and the 1-year, $100 face value, zero coupon bond trades today at $96. There are 1-year European options trading on the stock, as follows: C(120) = $16.5, P(120) = ?, C(130) = $12.3, P(130) = ?

Assume that you can go long or short these assets without frictions and that you can trade fractions of the shares and the zero-coupon bond. The stock does not pay dividends.

2. How would you construct a bull spread using the calls only and using the puts only? For each of the strategies, show the payoffs and profits if the underlying asset at expiration trades at $120, $125, $130, and $135.

Reference no: EM133056253

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