Use the two-state binomial option-pricing model with continuous compounding for the following questions:

• S₀ = $100; X = $120; r_f = 5.5%
• The stock price will either increase to $150 (u=1.5) or decrease to $80 (d=0.8).

a) Value the call using the risk-neutral approach.

b) Given the value of the call calculated above, what is the value of a put option, according to Put-Call Parity, with the same strike price and maturity date?

c) What are the put option values (P_u & P_d) across the two states?

d) What is the delta (i.e., hedge ratio) for the put?

e) What is the probability (Pr_u) that the underlying stock price will experience the u state? (Same as above)

f) Value the put using the risk-free approach.

g) Value the put using the risk neutral approach.