8. Two-step binomial model (S22-2) Johnny Jones’s high school derivatives homework asks for a binomial valuation of a 12-month call option on the common stock of the Overland Railroad. The stock is now selling for $45 per share and has an annual standard deviation of 24%. Johnny first constructs a binomial tree like Figure 22-2, in which stock price moves up or down every six months. Then he constructs a more realistic tree, assuming that the stock price moves up or down once every three months, or four times per year.

a. Construct these two binomial trees.