Question: 8. Consider a 3-play binomial option pricing model with 1 year per play (assume n = 3 and T = 1). The initial stock price

8. Consider a 3-play binomial option pricing model with 1 year per play (assume n = 3 and T = 1). The initial stock price is $50 per share. Assume u = 1.2, d = 0.8, and the interest rate r = 0.05. (4 points) There is a 3-year call option with a strike price of $52. a. Clearly draw the binomial tree for this position. Indicate the stock price at each node, and the payoffs of the call option at the terminal nodes. b. Calculate the risk-neutral probability P. c. Using the 3-play binomial option pricing formula, and the values you calculated in parts a and b, calculate the price of this call option

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