3. Suppose that the close price of Microsoft corporation (MSFT) is $171.88 on 4/15/2020. The continuously compounded risk-free rate is 0.98% per year. The annual standard deviations are from the previous problem. Also, assume MSFT pays no dividends. a) Let's consider a European put option with a strike price of $ 175.00 expiring on 1/15/2021 and use the annualized standard deviation from problem 2. i. Compute the value of a three-step binomial tree (BT) model.(Divide the investment horizon into three pieces.) ii. Compute the BLACK-SCHOLES (BS) formula, which is given by call option : c= SN(d1) - Xe-rTN(d2) put option : p = SN(-d2)- Xe-TN(-d1) di In(So/X) + (r +o2/2)T OVT _In(So/X) + (1 - 02/2)T NT That is, d2 = dj-OVT d2 = where: T: Time to maturity So : Asset price X: Exercise price r: Continuously compounded risk free rate 0 : Volatility of continuously compounded return on the stock N(*) : Cumulative Normal Probability iii. For this time, compute the option price with a nine-step binomial tree. iv. Compare all three prices from the previous problems. 3. Suppose that the close price of Microsoft corporation (MSFT) is $171.88 on 4/15/2020. The continuously compounded risk-free rate is 0.98% per year. The annual standard deviations are from the previous problem. Also, assume MSFT pays no dividends. a) Let's consider a European put option with a strike price of $ 175.00 expiring on 1/15/2021 and use the annualized standard deviation from problem 2. i. Compute the value of a three-step binomial tree (BT) model.(Divide the investment horizon into three pieces.) ii. Compute the BLACK-SCHOLES (BS) formula, which is given by call option : c= SN(d1) - Xe-rTN(d2) put option : p = SN(-d2)- Xe-TN(-d1) di In(So/X) + (r +o2/2)T OVT _In(So/X) + (1 - 02/2)T NT That is, d2 = dj-OVT d2 = where: T: Time to maturity So : Asset price X: Exercise price r: Continuously compounded risk free rate 0 : Volatility of continuously compounded return on the stock N(*) : Cumulative Normal Probability iii. For this time, compute the option price with a nine-step binomial tree. iv. Compare all three prices from the previous problems