1.You buy a call option and buy a put option on bond X. The strike price of the call option is $90 and the strike price of the put option is $105. The call option premium is $5 and the put option premium is $2. Both options can be exercised only on their expiration date, which happens to be the same for the call and the put. If the price of bond X is $100 on the expiration date, your total payoff is $ _________and then total profit from the options portfolio is $ ________.

NOTICE: if the amount is negative, for example -$1 then you should put -1 in the blank.

2.Consider the following information about a convertible bond.

Straight Bond Information

Face Value: $1,000

Stock Annual Coupon: $100

Maturity Date: 5 years

YTM: 12%

Risk free rate: 9%

Stock Information

Price: $30 per share

Standard dev.: 50%

Conversion Price: $50

Calculate the approximate fair market price for this bond using Black-Scholes Option Pricing Model).