Question: 1. a) Explain the difference between an option spread and combination. (20 marks) b) Illustrate how a butterfly spread is constructed using either puts or

1. a) Explain the difference between an option spread and combination.

1. a) Explain the difference between an option spread and combination. (20 marks) b) Illustrate how a butterfly spread is constructed using either puts or calls. (40 marks) c) Demonstrate, using a numerical example, the range of potential payoffs and profits from the butterfly spread. (40 marks)

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