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The following options prices were observed for calls and puts on Zesla Lid for the trading day of July 6 2020. Use this information in Questions 3-8. The stock was priced at $163.37. The expirations were July 17, August 21 and October 16. The continuously compounded risk- free rates associated with the three expirations were 0.0517, 0.0542 and 0.0565, respectively. The options have European expiries. 1 STRIKE 150 155 160 165 JUL 9.50 5.70 2.23 0.77 Zesla Ltd CALLS AUG OCT 11.25 13.61 7.96 10.88 5.01 8.04 2.79 6.90 JUL 0.17 0.71 2.22 5.61 Zesla Ltd PUTS AUG 1.18 2.66 4.63 7.42 OCT 2.69 4.44 6.60 8.81 Question 3 (3 marks) Let the standard deviation of the continuously compounded return on the stock be 20 percent. Ignore dividends. Respond to the following: a. What is the theoretical fair value of the October 165 call? Calculate this answer by hand and then re-calculate it using BlackScholesMerton Binomial/0e.xlsm. b. Based on your answer in part a, recommend a riskless strategy. c. If the stock price decreases by $1, how will the option position offset the loss on the stock? The following options prices were observed for calls and puts on Zesla Lid for the trading day of July 6 2020. Use this information in Questions 3-8. The stock was priced at $163.37. The expirations were July 17, August 21 and October 16. The continuously compounded risk- free rates associated with the three expirations were 0.0517, 0.0542 and 0.0565, respectively. The options have European expiries. 1 STRIKE 150 155 160 165 JUL 9.50 5.70 2.23 0.77 Zesla Ltd CALLS AUG OCT 11.25 13.61 7.96 10.88 5.01 8.04 2.79 6.90 JUL 0.17 0.71 2.22 5.61 Zesla Ltd PUTS AUG 1.18 2.66 4.63 7.42 OCT 2.69 4.44 6.60 8.81 Question 3 (3 marks) Let the standard deviation of the continuously compounded return on the stock be 20 percent. Ignore dividends. Respond to the following: a. What is the theoretical fair value of the October 165 call? Calculate this answer by hand and then re-calculate it using BlackScholesMerton Binomial/0e.xlsm. b. Based on your answer in part a, recommend a riskless strategy. c. If the stock price decreases by $1, how will the option position offset the loss on the stock