only need to answer problem 9

8. A stock price is $40 now. In one month it can go 10% up or down. In the second month it can go 10% up or down. The annual interest rate is 11% with continuous compounding. Use risk-free portfolios to determine the value of the a a)Two-month European call with strike price 40. b) Two-month European call with strike price 41 9.Use risk-neutral valuation to calculate the probabilities in the model that will give you the correct call prices in the previous problem parts a) and b). 8. A stock price is $40 now. In one month it can go 10% up or down. In the second month it can go 10% up or down. The annual interest rate is 11% with continuous compounding. Use risk-free portfolios to determine the value of the a a)Two-month European call with strike price 40. b) Two-month European call with strike price 41 9.Use risk-neutral valuation to calculate the probabilities in the model that will give you the correct call prices in the previous problem parts a) and b)