Consider a one-step binomial tree on stock with a current price of $200 that can go either up to $220 or down to $180 in 2 year. The stock does not pay dividend. The continuously compounding interest rate is 4% (per year). We want to price the 2-year $200-strike European call option on this tree. (i) What's the option payoff at expiry if the stock price ends up at $220 ? (ii) What's the payoff if the stock price ends at $180? (iii) Use the tree to compute the value and delta of the option. (iv) What's the risk-neutral probability of the stock price going up to the $220 node of the tree? (v) What's the risk-neutral probability of going down to the $180 node? |(Round answers to 2 decimals)