Question: In a binomial model a call option and a put option are both written on the same stock. The exercise price of the call option

In a binomial model a call option and a put option are both written on the same stock. The exercise price of the call option is 30 and the exercise price of the put option is 40. The call option’s payoffs are 0 and 5 and the put option’s payoffs are 20 and 5. The price of the call is 2.25 and the price of the put is 12.25.

a. What is the riskless interest rate? Assume that the basic period is one year.

b. What is the price of the stock today?

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