Explain. 13. and 14. (DOUBLE CREDIT 2 POINTS) a. Where the left and right tic-marks are exercise prices 60 and 80, respectively, explain how the strangle payoff above can be created with a put and call. b. Suppose that the price variance of the underlying security rises. What happens to the payoff pattern from the point of view of a prospective purchaser of the put and call. Explain.

15. Suppose the 180-day bill rate is lower than the 90-day rate. What does that imply about traders expectations of future interest rates? Explain.
16. An investor buys a security and writes a European call whose exercise price E makes it on the money. Draw a diagram that shows the possible payoff depending on possible prices of the security at the exercise date. Explain
17. You have seen the formula for deriving the yield to maturity on a bond. What will the formula be for a zero-coupon bond (one that pays no coupon, but one cash payment at the end)? Explain.