1 B. Suppose that C₁, C₂ and C3 are the prices of European call options with strike prices K₁, K₂ and K3, respectively, where K3 > K₂ > K₁ and K3 - K₂ = K₂ -K₁. All options have the same maturity. Show that C₂ ≤ (C₁ + C3) (Hint: you may consider a portfolio that is long one option with strike price K₁, long one option with strike price K3, and short two options with strike price K₂.) (40%)