Question 3 Consider a 9-month maturity American Call option on a stock currently valued at $80 with a strike price of $80. Volatility of the stock's return is 30% per annum. The stock is expected to pay a discrete dividend of $8 in 3.5 months. Assume the risk-free rate is constant at 5% per annum continuously compounded. a) Price the American Call option using a monthly step binomial tree. b) Price a compound European PUT option on the CALL option described in a). The maturity of the compound put option is 6 months, and the strike price is $10. Calculate the delta of the COMPOUND PUT option. Use this result to calculate an approximate 1-day change in the value of the compound option assuming the next day's stock return is 1.5%. Answer these questions in Excel. / Question 3 Consider a 9-month maturity American Call option on a stock currently valued at $80 with a strike price of $80. Volatility of the stock's return is 30% per annum. The stock is expected to pay a discrete dividend of $8 in 3.5 months. Assume the risk-free rate is constant at 5% per annum continuously compounded. a) Price the American Call option using a monthly step binomial tree. b) Price a compound European PUT option on the CALL option described in a). The maturity of the compound put option is 6 months, and the strike price is $10. Calculate the delta of the COMPOUND PUT option. Use this result to calculate an approximate 1-day change in the value of the compound option assuming the next day's stock return is 1.5%. Answer these questions in Excel. /