The Three-Month 90-Strike Call Is Priced at $5 and the Three-Month

question 18

Multiple Choice

The three-month 90-strike call is priced at $5 and the three-month 100-strike call is priced at $3.What is the maximum possible net payoff on a bullish vertical spread using these options?

• A)$5
• B)$7
• C)$8
• D)$10

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Definitions:

Interest Rate

The cost of borrowing money or the return for investing money, usually expressed as a percentage per annum.

Money Demand

The desire to hold cash or liquid assets rather than making investments, influenced by interest rates, income levels, and inflation.

Real GDP

The assessment of a nation's economic production once it has been corrected for changes in prices, such as inflation or deflation, showcasing the actual amount of goods and services generated.

Nominal Interest Rate

The interest rate before taking inflation into account, representing the raw interest rate that a borrower pays to a lender.