Consider Two Six-Month European Calls at Strikes 90 and 100 $C ( 90 ) - C ( 100 )$

question 12

Multiple Choice

Consider two six-month European calls at strikes 90 and 100. The risk free rate is 2%. Which of the following alternatives best describes the condition that must be met by the difference in prices $C ( 90 ) - C ( 100 )$ ?

• A) It must be strictly less than $10.
• B) It must be less than or equal to $10.
• C) It must be strictly greater than $10.
• D) There is insufficient information to answer this question.

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Definitions:

Markdown

The amount that the price of an item is reduced from the regular selling price.

Invoice

a document issued by a seller to a buyer that specifies the products or services provided and the amount due for payment.

Credited

Recognized or accounted for, often referring to the addition of funds to an account.

Selling Price

The price at which a product or service is sold to the purchaser, often determined by the cost of production, market demand, and competition.