3. (20 points) Consider the model Art = (0A++ Ateg, where ep takes + or -1 with equal probability. Here To = 5%,o=2%, (0.5) = 0.02008, (1) = 0.02017 and dt = 1/2 (a) Build a two-step binomial tree for the short rate process. (b) price a one-year call option on a 1,5 year zero-coupon bond with face value $1,000, with strike price $960. Explain how to hedge the call. 3. (20 points) Consider the model Art = (0A++ Ateg, where ep takes + or -1 with equal probability. Here To = 5%,o=2%, (0.5) = 0.02008, (1) = 0.02017 and dt = 1/2 (a) Build a two-step binomial tree for the short rate process. (b) price a one-year call option on a 1,5 year zero-coupon bond with face value $1,000, with strike price $960. Explain how to hedge the call