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Find out the price of the underlying stock

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Reference no: EM133120815

You are given the following prices for 1-year European call options:

Strike price

Call option premium

55

15.00

60

11.25

65

 8.66

70

6.05

Consider the following two strategies:

I. 55-65 bull spread with calls.

II. 60-70 bull spread with calls

The annual effective risk-free interest rate is 0.02. Let S be the price of the underlying stock at the end of one year. X is the smallest value and Y is the largest value such X < S that or S > Y.

Strategy II yields a higher profit than Strategy I. Calculate X.

(A) 43.49 (B) 56.16 (C) 68.83 (D) 81.50 (E) 94.17

Reference no: EM133120815

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