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# Suppose that the price of a nondividendpaying stock is \$50, its volatility is 35%, and the riskfree rate for all maturities is 5% per annum.

Suppose that the price of a nondividendpaying
stock is \$50, its volatility is 35%, and the riskfree
rate for all maturities is 5% per annum. Use Derivagem to calculate the cost of setting up the following
positions. Choose “BlackScholes
European”
for Option Type in D17 cell. We will learn how to use
derivagem this week.
profits and stock prices at expiration.
Hint: use the strategy developed for Homework 4 spreadsheet from Hull Chapter 9. Use stock price
ranges from \$30 to \$70 in \$1 increment. Your final graphs should look similar to Figures from 11.2 to
11.12 in the textbook.
Q1: A bull spread using European call options with strike prices of \$45 and \$50 and an expiration of 6
months. (The call price for K=\$50 option should be \$5.505. If not, double check the parameters you
used in Derivagem. See the attached screenshot of derivagem.)
Q2: A bear spread using European put options with strike prices of \$45 and \$50 and an expiration of
6 months.
Q3: A butterfly spread using European call options with strike prices of \$45, \$50 and \$55 and an
expiration of 6 months.
Q4: A butterfly spread using European put options with strike prices of \$45, \$50 and \$55 and an
expiration of 6 months. (Hint: The total profit graph should be identical to Q3.)
Q5: A straddle using options with a strike price of \$50 and a sixmonth
expiration.
Q6: A strangle using options with a strike prices of \$50 and \$55 and a sixmonth
expiration.

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