7. Assume the current price of some underlying asset is 100, that the continuously compounded risk-free rate of interest is such that e" 0.95 and the annual volatility of the share price is such that e = 1.25. (a) Using a binomial tree approach with yearly time intervals, calculate the value of a two year European call option with strike price 110. [4 marks] (b) Discuss, providing reasons, the relationship between the price of the above European call option and an American call option with identical strike price and maturity. [2 marks] [Total: 6 marks) Total: 50 marks