Question: You want to use the binomial tree analysis to value a 6-month call option with a $65 strike price on Lupin Corporation. The shares are

You want to use the binomial tree analysis to value a 6-month call option with a $65 strike price on Lupin Corporation. The shares are currently trading for $70. The annualized continuously compounded risk-free rate is 3%. The volatility of the stock is 51%. You will use the Cox Ross Rubenstein method for computing the binomial tree.

a)Draw the binomial tree and find the value of the option using a time step of 3 months (n=2).

b) Draw the binomial tree and find the value of the option using a time step of 2 months (n=3).

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