A binary call option pays $1 at expiry if the value of the underlying asset is greater than the strike price, and $0 otherwise. The current interest rate is 3% pa.

(a) Calculate the return R over one month.

(b) Calculate all state prices at expiry for a ten-step binomial model where each time step is one month and the underlying asset is S=20, K=19, u=1.090, d=0.9173. That is, calculate all (10, j) for j = 0, 1, . . . , 10 .