Suppose that the price of a nondividendpaying stock is $32, its volatility is 30%, and the riskfree rate for all maturities is 5% per annum. Use DerivaGem to calculate the cost of setting up the following positions. Ignore the impact of discounting.

A bull spread using European call options with strike prices of $25 and $30 and a maturity of six months. You would buy the $25 strike call and sell the $30 strike call. A bear spread using European put options with strike prices of $25 and $30 and a maturity of six months. You would buy the $30 strike put and sell the $25 strike put. In each case provide the maximum gain and maximum loss: i) bull max gain; ii) bull max loss; iii) bear max gain; and iv) bear max loss.

a. $1.2970; ii) $3.7130; iii) $ 1.1636; and iv) $3.8364

b. None of the others

c. $1.2970; ii) $1.1636; iii) $ 3.8364; and iv) $3.7130

d. $1.2970; ii) $3.7130; iii) $ 3.8364; and iv) $1.1636

e. i) $3.7130; ii) $1.2970; iii) $ 3.8364; and iv) $1.1636