Question: Consider a two-step binomial tree model with S0 = $100, U = 0.1, D = 0.1 and one-step risk-free return R = 0.05. (a) (4.5

Consider a two-step binomial tree model with S0 = $100, U = 0.1, D = 0.1 and one-step risk-free return R = 0.05.

(a) (4.5 pts) What is the price of a European call option with K = 95 to be exercised after two time steps?

(b) (5.5 pts) Find the replicating strategy of this European call option.

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