Hi,

Kindly provide assistance with answers for the questions found in the attached file below. Please provide explanation where necessary.

Regards,

Question 1 Assume six-month forward price of XYZ stock is $58. The stock pays no dividends. The six-month continuously compounded rate of interest is 4%. If the price of a put option is $3 what will be the maximum possible exercise price X that is consistent within no arbitrage context? Question 2 The current price of a non-dividend-paying stock is $40. Over the next year it is expected to rise to $42 or fall to $37. An investor buys put options with a strike price of $41. Explain the number of shares necessary and the condition required to hedge the position? Question 3 (a) Which of the following is correct? Explain your answer based on the correct choice. 1. A calendar spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different 2. A calendar spread can be created by buying a put and selling a call when the strike prices are the same and the times to maturity are different 3. A calendar spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different 4. A calendar spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different (b) A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net loss (after the cost of the options is taken into account)? Explain your answer in detail