1. The sample tree you got has 2 steps. Current stock price is 5100. Annual volatility is 20%. Now ree have 3 steps instead of 2. In order to keep the annual volatility the same while the number of steps, the 3-step tree should have upward movement as u e here e is exponential,o is annual volatility, T is time to maturity, and N is number of steps. The downward movement should be d e-a/T/N ree rate Calculate the price of call option with a strike price of $95 using your 3-step tree. Risk-f is 3% and the option has 1 year to maturity. Create a binomial tree with 4 steps. Other conditions are the same as 1. What is the price of call option with a strike price of $95? 2. 3. How does the option price change by number of steps? Draw a graph to show the pattern. The x-axis of the graph should be number of steps and the y-axis of the graph should be the call option price. The format (not the actual value) is something like this: Call Option Price 2 steps 3 steps 4 steps 5 steps 6 steps -option Price To draw the graph, get the option price for 2, 3, 4, 5, 6 steps. 4. Now keeping the other conditions the same, change the annual volatility to25%. Use the 6-step tree you created above. What is the price of the call option with strike price $95? What can you infer about the relationship between call option price and volatility? 1. The sample tree you got has 2 steps. Current stock price is 5100. Annual volatility is 20%. Now ree have 3 steps instead of 2. In order to keep the annual volatility the same while the number of steps, the 3-step tree should have upward movement as u e here e is exponential,o is annual volatility, T is time to maturity, and N is number of steps. The downward movement should be d e-a/T/N ree rate Calculate the price of call option with a strike price of $95 using your 3-step tree. Risk-f is 3% and the option has 1 year to maturity. Create a binomial tree with 4 steps. Other conditions are the same as 1. What is the price of call option with a strike price of $95? 2. 3. How does the option price change by number of steps? Draw a graph to show the pattern. The x-axis of the graph should be number of steps and the y-axis of the graph should be the call option price. The format (not the actual value) is something like this: Call Option Price 2 steps 3 steps 4 steps 5 steps 6 steps -option Price To draw the graph, get the option price for 2, 3, 4, 5, 6 steps. 4. Now keeping the other conditions the same, change the annual volatility to25%. Use the 6-step tree you created above. What is the price of the call option with strike price $95? What can you infer about the relationship between call option price and volatility