1. A European put written on shares has strike price $26 and expires in four time steps. Using CRR notation, the underlying share prices are calculated using S $25, u 1.2 and d = 1/u. The return on a bank investment over each time step is R = 1.05 (a) Construct a four-step binomial pricing tree for the underlying asset (b) Find the premium of the put by calculating the risk neutral probabilities and then constructing a four-step binomial pricing tree (c) Use put-call parity to find the premium of a European call with the same under- lying asset, strike price and expiry as the European put. Use PVo(K) K/R (d) Calculate all state prices at the put's expiry. That is, calculate all (4,j) for 0,.,4 (e) Use the state prices (4)) to calculate the premium of the European put. Com- pare this premium to the premium calculated in part (b)