The premium of a 3-month 40-strike call option on a stock currently selling for $40 is $2.78, and the premium for a 45-strike call option on the same stock is $0.97. Consider the bull spread achieved by purchasing the 40-strike call and selling the 45-strike call. The risk-free effective annual interest rate is 8.33%. (a) Find the future value of the net premium. (b) Graph the pro t function of the bull spread.

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.