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What is the maximum gain of a bear spread

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Reference no: EM131697063

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

a. How would you create a position that trades off gains beyond a certain level against large losses if xt 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.

Reference no: EM131697063

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