Question: Two Step Binomial Tree: Consider again the at-the-money European call option with six months left to maturity written on a non-dividend paying stock. Let today's

Two Step Binomial Tree: Consider again the at-the-money European call option with six months left to maturity written on a non-dividend paying stock. Let today's stock price be 80 kr and the stock volatility be 35%. Furthermore let the risk free interest rate be 8%.

(a) Construct a two-step Binomial tree for the stock.

(b) Use your stock tree in exercise (a) to calculate today's price of the European call.

(c) Consider a European at-the-money put option with six months left to maturity written on the stock depicted in exercise (a). Calculate today's price of this option.

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