The current price of a non-dividend paying stock is 40 and the continuously compounded risk-free rate of return is 8% per annum. In addition, you are given the following table of call and put option premiums for various strike prices: Strike Price Call Premium Put Premium 35 6.13 0.44 40 2.78 1.99 45 0.97 5.08 All options in the table mature in 3 months. You are interested in speculating on volatility in the stock price after 3 months, and are comparing two investment strategies. The first is a 40-strike straddle. The second is a 35/45-strike strangle. (a) Explain the composition of the 40-strike straddle, and draw its payoff graph. (b) Explain the composition of the 35/45-strike strangle, and draw its payoff graph. (c) For what range of stock prices in 3 months does the the strangle outperform the straddle in terms of their profits? The current price of a non-dividend paying stock is 40 and the continuously compounded risk-free rate of return is 8% per annum. In addition, you are given the following table of call and put option premiums for various strike prices: Strike Price Call Premium Put Premium 35 6.13 0.44 40 2.78 1.99 45 0.97 5.08 All options in the table mature in 3 months. You are interested in speculating on volatility in the stock price after 3 months, and are comparing two investment strategies. The first is a 40-strike straddle. The second is a 35/45-strike strangle. (a) Explain the composition of the 40-strike straddle, and draw its payoff graph. (b) Explain the composition of the 35/45-strike strangle, and draw its payoff graph. (c) For what range of stock prices in 3 months does the the strangle outperform the straddle in terms of their profits