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Suppose that the price of a non-dividend-paying stock is \$42, its volatility is 35%, and the risk-free rate for all maturities is 6% per annum. Use Derivagem (Analytic European) to calculate the cost of setting up the following positions. Assume Tree Steps = 100. In each case provide a spreadsheet showing the relationship between profit and final stock price. Use stock price ranges from \$20 to \$50. Your graphs should look similar to Figures 10.2 to 10.12.
Q1: A bull spread using European call options with strike prices of \$35 and \$40 and an expiration of 6 months.
Q2: A bear spread using European put options with strike prices of \$35 and \$40 and an expiration of 6 months.
Q3: A butterfly spread using European call options with strike prices of \$35, \$40 and \$45 and an expiration of one year.
Q4: A butterfly spread using European put options with strike prices of \$35, \$40 and \$45 and an expiration of one year.
Q5: A straddle using options with a strike price of \$35 and a six-month expiration.
Q6: A strangle using options with a strike prices of \$35 and \$40 and a six-month expiration.