Exercise 3 Derivatives: Isabel Figuerola-Ferretti What is a lower bound for the price of a six-month call option on a non-dividend-paying stock when the stock price is $80, the strike price is $75, and the risk-free interest rate is 10% per annum? Exercise 4 What is the lower bound for the price of a 2 month European put option on a non-dividend paying stock when the stock price $58, the strike price is $65 and the risk free interest rate is 5% per annum? Exercise 5 A trader buys a call option with a strike price of $45 and a put option with a strike price of $40. Both options have the same maturity. The call costs $3 and the put costs $4. Draw a diagram showing the variation of the trader's profit with the asset price. Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7, respectively. How can the options be used to create a bear spread? Construct a table that shows the profit and payoff for both spreads Exercise 7 Three put options on a stock have the same expiration date and strike prices of $55,$60, and $65. The market prices are $3,$5, and \$8, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss