A stock is priced at $100. It pays no dividend. The riskless rate is 4% per year. The volatility of the stock is 50% per year.

a) [5] Construct a 2 period binomial lattice for the stock over a one year time horizon.

b) [10] Compute the price of an American put option with strike $110 that expires in one year. Show the option prices at each node of the lattice and indicate the nodes where the option should be exercised.