1. What is your risk-free arbitrage profit available if a six-month option pair has a strike price of $150, a spot price of $147, a call premium of $10, a put premium of $11, and the risk-free rate is 6%?

2. What should you do if you come across a 2-year option pair with a strike price of $100, a spot price of $100, a call premium of $22, a put premium of $15, and the risk-free rate is 5%?

3. What option strategy would be best if you believe there is a good chance for either large gains or large losses in the underlying stock over the next 6 months? Justify your answer.

4. Consider the following: *S*_{0} = 100; *X* = 110; *r*_{f} = 10%; The two possibilities for *S*_{T} are 130 and 80. What is the hedge ratio of a *put* option?

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