aidebaobao

I think this question is best solved by elimination

First off, you can rule out C because buying ATM put (this is where knowing current LIBOR helps) is going to be more expensive than buying a put at 3% strike (OTM).

So, the puts in A & B will cost you the same amount as both have 3% strike.

On the short call side, you will make more premium by selling a call that is deeper in the money. i.e. selling a call at strike 5% will fetch you more than a call at 4.5% (given current LIBOR is 4%)

Therefore, my answer is

B

lcai

A...........low exercise for put mean lower cost to buy

low exercise for call mean more money collected from sale


i am somewhat troubled by the current libor quote tho