1. Suppose you purchase one crude oil August 55 European call contract quoted at $3.40 and write one crude oil August 50 European call contract quoted at $5.25. If, at expiration, the spot price of a barrel of crude oil is $57, your profit would be __________. (Hint: Recall that each option covers 1,000 barrels and analyze the total profit of this position by analyzing the profit of each option separately and then sum.)
2. You just paid $353,000 for a policy that will pay you and your heirs $12,500 a year forever. What rate of return are you earning on this policy?