A stock price is currently $50. Over each of the next two six-month periods, it will either increase by 17% or decrease by 8%. The risk-free interest rate is 5% per annum with continuous compounding. 1) To use the 2-step binomial tree model to calculate a option price on the stock, calculate p (the risk-neutral probability) for each step (a six-month period). Answer: 2) What is the value of a one-year European call option with a strike price of $50 ? Use no-arbitrage arguments Answer: 3) What is the value of a one-year American put option with a strike price of $52 ? Use no-arbitrage arguments and the two-step binomial model