(Two-period model, call with changing exercise price) A call option is written on a stock whose current price is $50. The option has maturity of 2 years, and during this time the annual stock price is expected to increase by 25% or to decrease by –10%. The annual interest rate is constant at 3%. The option is exercisable at Date 1 at a price of $55 and at Date 2 for a price of $60.

a. What is its value today?

b. Will you ever exercise the option early?