3.

Yahoo stock is trading today at $26. Suppose that in one month, the stock will be either $30 or $25. Using a one-step binomial tree, value the following options which expire in one month: (a) A European call option with K 20, first with a risk-free rate r-0 and then again with a risk-free rate of r-5% (b) A European call option with K 28 with risk-free rate r 0 and (c) A European call option with K- 35 with risk-free rate r0 and d) Repeat the above calculations for European puts with the same 0. 0. Strike prices and risk-free rates