b) (15 points) A stock is selling for $28 today. In 1 year, be worth either $38 (with 40% probability) or $25 (with 20% probability). If the interest rate is 8%, what is the value today of a one-year call option on the stock with exercise price $30?

Hint: Calculate the state prices q_u and q_d and then the value of the option (you can use the template I have for you with binomial figure in Excel in the link below).

BINOMIAL OPTION PRICING Up Down Initial stock price Interest rate Exercise price Call option ??? State prices qu ad Call price