Question 1 [20 marks] Current stock price is $22. Time to maturity is 8 months. Continuously compounded, risk-free interest rate is 6 percent per annum. European options prices are given in the following table: Strike Price K1=$17.50 K2=$20.00 K3=$22.50 K4=$25.00 Call Price $5.00 $3.00 $1.75 $0.75 Put Price $0.05 $0.75 $1.75 $3.50 (a) What is the aim of a long (or bottom) straddle strategy? Create a long straddle by buying a call and put with strike price K3=$22.50 [10 marks] (b) What is the aim of a short (or top) strangle strategy? Create a short strangle by writing a call with strike price K3=$22.50 and a put with strike price K2=$20. [10 marks]