= - 4. Consider a stock with current price So $90. The value of the stock at time t 1 can take one of two values: S1,2 = $100, S1,d = $70. The price of a risk-free bond that pays out $1 in period t = 1 is $0.99. (a) Using a one step binomial tree, write down the possible payoffs of a put option on stock S with strike K $85 and maturity t 1. (b) What is the price of this put option? HINT: this calculation is very similar to what we did for a call option in the lecture notes. (c) What is the price of a call option with strike K $85 and maturity t = 1? HINT: you can use put-call parity to find the call price. (d) Now suppose the stock price at time t 1 can be S1,u $110 or S1,d $70. Everything else is as before. Without doing any calculations, what would happen to the price of the put option? = =