Estimated time: maximum 1 hour and 15 minutes. Question 1 maximum 30 points] (Difficulty: intermediate; combination of FIN308-Bond Pricing and FIN429-Options; slides) An investor wants to protect against a fall in the market yield on a Treasury bond. Should the investor purchase a put option or a call option to obtain protection? Explain analytically the reasons for the chosen strategy Question 2 reasoning; textbook and slides) [maximum 40 points @imculty: intermediate; critical thinking with quantitative An investor buys a put option contract for S 3 of IBM Inc. stock, with a contract size of 100 shares. The stock price is currently $50 and the exercise price is $ 48.0) What is the initial investment? (i) What are the investor's expectations, and under what conditions does the investor make a profit? (ii), Is this put option in-the-money? (iv) Under what circumstances will the option be exercised? (v) If at the expiration of the option, the stock price is S 43 calculate the profitloss of the investment, and explain what are the transactions. [Do not forget to take into consideration the initial cost of buying this option calculated in @). (vi) Draw the payoff diagram showing the variation of the investor's profit/loss with the stock price at the maturity of the option. (max 6.66 points for each question) Question 3 Imaximum 30 points] (Difficulty: Easy; FIN429-Futures and Options, textbook and slides) (a). Explain analytically the long and short positions for call and put options. [max 10 points) (b). Draw the payoff graph for a long and short call and explain. [max 10 points (e). What is the "basis"? When is basis zero, and why? [max 10 points)