Question: 7. Consider a 2-play binomial option pricing model with 1 year per play (assume n = 2 and T = 1). The initial stock price

7. Consider a 2-play binomial option pricing model with 1 year per play (assume n = 2 and T = 1). The initial stock price is $100 per share. Assume u = 1.1, d = 0.9, and the interest rate r = 0.03. (4 points) There is a 2-year put option with a strike price of $110. a. Clearly draw the binomial tree for this position. Indicate the stock price at each node, and the payoffs of the put option at the terminal nodes. b. Calculate the risk-neutral probability P. c. Using the 2-play binomial option pricing formula, and the values you calculated in parts a and b, calculate the price of this put option

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