Answer all of the following questions in the Excel. For the following problems assume the effective 6-month interest rate is 2% (i.e., compute the future value) and use these premiums for S&R options with 6 months to expiration:

strike	call	put
$950	$120.405	$51.777
$1,000	$93.809	$74.201
$1020	$84.47	$84.47
$1050	$71.802	$101.214
$1107	$51.873	$137.167

1. Suppose you short the S&R index for $1000 and buy a 950-strike call. Construct payoff and profit diagrams for this position. Verify that you obtain the same payoff and profit diagram by borrowing $931.37 and buying a 950-strike put.

2) Construct payoff and profit diagrams for the purchase of a 950-strike S&R call and sale of a 1000-strike S&R call. Verify that you obtain exactly the same profit diagram for the purchase of a 950-strike S&R put and sale of a 1000-strike S&R put. What is the difference in the payoff diagrams for the call and put spreads? Why is there a difference?

3) (Draw profit diagrams for the following positions: a. Long a 1050-strike S&R straddle. b. Written 950-strike S&R straddle.

4) Draw profit diagrams for the following positions: a. Buy 950-strike call, sell two 1050-strike calls. b. Buy two 950-strike calls, sell three 1050-strike calls