Q1: Given the following inputs:

Interest rate	10.00
Dividend rate	7.00
Spot Price	27.00
Expiry (months)	7

constructs a portfolio that implements the following option strategy:

1

Strategy	Low Strike		Middle Strike		High Strike
Butter y Spread	KL = 25:00		KM = 34:00		KH = 43:00
Using the Black-Scholes model,

1. Graph the payo and pro t diagrams, labelling key points.

2. Find delta and construct the delta hedged portfolio at time t = 0.

3. Assume time doesnt change. Find the range of stock prices where the delta hedged portfolio shows a pro t, the range where it shows a loss, and the breakeven points.

4. Kai never rebalances the delta hedge. Do the same as part c) but at the time the option expires.

e) Find 3 stock prices x < y < z where (x) > 0, (y) > 0, (z) > 0.

(Compute each )