Question: 5. Let S = $45, r = 3% (continuously compounded), d = 5%, s = 30%, T = 1.5. In this situation, the appropriate values

5. Let S = $45, r = 3% (continuously compounded), d = 5%, s = 30%, T = 1.5. In this situation, the appropriate values of u and d are 1.27738 and 0.75972, respectively. Using a 2-step binomial tree, calculate the value of a $40-strike European call option.

Use: Table 1: Table of the Standard Normal Cumulative Distribution Function ?(z): https://math.ucalgary.ca/files/math/normal_cdf.pdf

a. $7.037

b. $8.305

c. $7.783

d. $8.141

e. $7.960

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