Explain why margin accounts are only required when clients write options but not when they buy options?  

1.Explain why margin accounts are only required when clients write options but not when they buy options?

. 2.Compare and contrast a bull spread using calls and a bull spread using puts. If you want to include in your  explanation a graphical representation of the payouts and/or profits feel free to do so.

. 3.Price a European Call & Put and an American Put on a stock that is currently selling at $25 and has a volatility of 25%. The options all have a life of 7 months and a strike price of $26. The 7-month risk free rate is 3%

per annum with continuous compounding.

a.Use a 9-step binomial tree to price all 3 options

b. Use a 10-step binomial tree to price all 3 options

c.Use the Black-Scholes-Merton formula to price the European options

4.Use the information in question 1, but now the stock will pay a dividend of $1 in 3 months from today. European Call & Put and American Call & Put using a 7-step binomial tree for each option.