Question: PLEASE ONLY ANSWER 3 and 4 Today, the continuous compound interest rate is 0.1% and one share of Amazon is $2367.92. A. What price do

PLEASE ONLY ANSWER 3 and 4

Today, the continuous compound interest rate is 0.1% and one share of Amazon is $2367.92.

A. What price do you expect Amazon to be 6 months from now? What European style option should you buy in this case? Your future price cant be a whole dollar, everyone should have different future stock price.

B. Assume the volatility of Amazon is 27% and you set your own strike price to 2 decimal places, find out how much your option in part 1 costs by using the Black-Scholes formula. You strike price cant be a whole dollar, everyone should have different strike price.

3. Draw the profit diagram for the straddle with the strike price in part 2 above (you may need to use the put-call parity formula).

4. Use the binomial model with 4 steps to find the American style option price in part 2 above.

PLEASE ONLY ANSWER 3 and 4

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