Q3: Given the following inputs: Interest rate 6.25 Dividend rate 6.00 For the next set of options use the same interest and dividend rates as above along, with a spot price of 40.72 and an expiry of 6 months. Given the following option prices: Strike Price CallPrice Put Price 31.00 34.00 41.00 9.89 7.29 3.25 0.62 0.93 3.67 c) Construct an arbitrage portfolio. Graph the payoff and profit diagrams. d) Explain the terms 'fat tails' and 'skew' (in the context of volatility)d) Compute the implied volatilities for each of the call options to the nearest 1%). Are these volatilities consistent with what we expect from 'fat tails' and 'skew'? Explain. Q3: Given the following inputs: Interest rate 6.25 Dividend rate 6.00 For the next set of options use the same interest and dividend rates as above along, with a spot price of 40.72 and an expiry of 6 months. Given the following option prices: Strike Price CallPrice Put Price 31.00 34.00 41.00 9.89 7.29 3.25 0.62 0.93 3.67 c) Construct an arbitrage portfolio. Graph the payoff and profit diagrams. d) Explain the terms 'fat tails' and 'skew' (in the context of volatility)d) Compute the implied volatilities for each of the call options to the nearest 1%). Are these volatilities consistent with what we expect from 'fat tails' and 'skew'? Explain