You are given the following:
Price of the stock | $26 |
Price of a six-month call at $25 | 2 |
Price of a six-month call at $30 | 4 |
An investor buys the $25 call and sells the $30 call. What are the profits if the stock's price at expiration is $20, $25, $30, or $35? Arbitrage implies what about the price of the call with the higher strike price?
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