1. What is the difference between “Profit” and “Intrinsic Value” in an option contract? Explain.2. How do the forward contracts and futures contracts are different from each other? Explain.3. As a strategy, which one would you prefer: speculation or arbitrage? Clarify your answer.4. If a stock of Microsoft is trading at $70 at expiry, the strike price is $85, and if you have bought a call option on that stock, and the call options cost the buyer $5, what is your profit at expiration?5. Suppose an investor purchases a call option with a strike price of $40 for a $8 premium when the underlying stock was trading at $46 per share. What is his profit at expiration?6. Suppose a share of stock sells for $66.55. A two year at the money call option sells for $30. An at the money put option with the same maturity sells for $18.45 . Can you create a risk-free investment by combining these three investments? How? What’s the risk-free rate?