A risky asset selling at $100 at t=0 follows a multiplicative binomial process. It can go up at t=1 by a factor of u=1.2, or down by a factor of d=0.96. the risk-free rate in the markets with a term to maturity of one period is 0.03%.

(i) Work out the value of a European Call and a European Put both with a term to maturity of two periods and a strike price of $100.

(7 points)

(ii) Confirm that the European Put Call Parity holds at t=0 and at both nodes at t=1.

(3 points)