1. The current price of Bank of America (BAC) is $10. The annual stan- dard deviation is 12%. The continuously compounded risk-free rate is 5% per year. Assume BAC pays no dividends. (a) Compute the value of a 1 year European call option with a strike price of $7 using a one-step (At = 1) binomial model. (b) Compute the value of a 1 year European call option with a strike price of $7 using a two-step (At = 0.5) binomial model. (c) Compute the value of a 1 year European call option with a strike price of $7 using a three-step (At = 0.25 ) binomial model. (d) Compute the value of a 1 year European call option with a strike price of $7 using a four-step (At = 0.125 ) binomial model. (e) Compare the option prices from (a), (b), (c), and (d). What are your findings? 1. The current price of Bank of America (BAC) is $10. The annual stan- dard deviation is 12%. The continuously compounded risk-free rate is 5% per year. Assume BAC pays no dividends. (a) Compute the value of a 1 year European call option with a strike price of $7 using a one-step (At = 1) binomial model. (b) Compute the value of a 1 year European call option with a strike price of $7 using a two-step (At = 0.5) binomial model. (c) Compute the value of a 1 year European call option with a strike price of $7 using a three-step (At = 0.25 ) binomial model. (d) Compute the value of a 1 year European call option with a strike price of $7 using a four-step (At = 0.125 ) binomial model. (e) Compare the option prices from (a), (b), (c), and (d). What are your findings