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Consider a portfolio that consists of:
1. A put option bought at strike price X − 10
2. A put option written at strike price X − 5
3. A call option written at strike price X + 5
4. A call option bought at strike price X + 10.
The premia for the above options are given by P1, P2, C1, and C2, respectively.
A. Draw the payoffs and profits for this portfolio
B. Write the piece-wise function that defines this portfolio’s profits
C. Why would an investor pursue this strategy?
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A $100,000 par value 30 year U.S. Treasury Bond redeemable at par with a coupon rate of 7.25% per year, What was the sale price of the bond to Investor B?
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