Question: Consider a two-step binomial tree. Each step represents 6 months. The current price of a non-dividend paying stock is $80. The risk-free rate is 3%

Consider a two-step binomial tree. Each step represents 6 months. The

Consider a two-step binomial tree. Each step represents 6 months. The current price of a non-dividend paying stock is $80. The risk-free rate is 3% per annum (continuous compounding). The up rate is u=1.1198=1/d. Use the tree to estimate the value of a long bear spread constructed from (i) a one-year European put option with a strike price of $77; (ii) a one-year European put option with a strike price of $83; (keep four decimals)

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