1. You are creating the following gross payoff profile using an options portfolio for your friend based on his request: Stock Price 260 270 280 290 Payoff 10 30 20 10 a. What options, at what strikes, would you hold in your portfolio to achieve this? Assume that the desired payoffs are zero for any stock price 300. b. For the above position, will the net payoff diagram be above or below the gross payoff? Why? 2. The share price of BKM is currently at 3807 and you are interested in buying the two- month put options on BKM with an exercise price of 5800. The volatility of BKM stock price is estimated at 20%, and the risk-free rate is 5%. a. What should be the Black-Scholes price for this put option? b. If this option is currently trading at 327.40, compute the implied vol. c. When the markets opened today morning, the implied vol corresponding to this option was at 23%. What was the option price in the morning? d. Construct a two period Binomial tree for BKM, which can be later used to price this option