1) 6-month call options with strike prices of $45 and $50 cost $7 and $4, respectively.
i) Determine the maximum gain when the bull spread is created from the calls?
ii) Determine the maximum loss when a bear spread is created from the calls?
iii) Determine the maximum gain when a bear spread is created from the calls?
iv) Determine the maximum loss when a bull spread is created from the calls?
2) Compute price of the 3-month European put option on the stock with the strike price of= $60 when present stock price is $60, a dividend of $1.50 is expected in 2 months, the risk-free interest rate is 10% per annum, and volatility is 30% per annum. Illustrate PV of dividend and computed values of d1 and d2.
i) Compute PV of dividend.
ii) Illustrate value of d1.
3) Illustrate value of d2.
4) Compute the price of the put option.