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.

To answer the following questions, please provide a spreadsheet showing the relationship between

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.