Binomial Options

s = 25%

h=1

S_{0 =}$50

K= $45

r= .045

d= 0

Use the following formulas for a. through d.

1. Solve for the value of the stock price in the up position (uS).
2. Solve for the value of the probability of an up move in the stock price.
3. Solve for the value of the stock price in the down position (dS).
4. Solve for the value of the probability of a down move in the stock price.
5. Using the values you calculate for the values of the up and down probabilities, calculate the value of the Stock at each of the 5 positions on the binomial tree and the value of the Call Option.

Note: Use formula of (S-X) to calculate the value of the call option at each node on the binomial option tree.

$50

f. Explain how the Put-Call Parity formula can be used to solve for the value of the Put, given that you know the value of the call option. What other assets would you need to know? No calculations are necessary, but you need to fully explain your answer.