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Suppose a stock is currently selling at $42, and there are two call options available on this stock with the following characteristics. One call option with strike price of $40 is selling at $4, whereas another call option with strike price of $45 is selling at $2. You construct a bull spread, which means you purchase the call with the lower strike price and write the call with the higher strike price.
a. Perform a "what if" analysis. That is, make a table showing net profit as a function of stock price at expitation (ST)
b. What is the break-even stock price?
c. What is the most you could lose in this strategy?
d. What is the most you could make in this strategy?
e. Construct a graph showing how net profit varies with stock price at expitation for this bull spread.
If cash, $50,000, is used to purchase an asset and other cash activities in the year net out to $20,000, what value would the cash stream for that year be?
Then, pick one exchange rate, and compute the cross-rate implied by the no-arbitrage condition. Does it hold? If not, why?
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With very little in the way of exceptions, the common law required no writing or signature to enter into a contract. The overwhelming number of contracts were verbal or oral contracts. What is the more common practice today?
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