C 4. (a) [12 marks] The price of a certain non-dividend-paying stock is 10. Over each of the next two one-year periods the price can either increase by 25% or decrease by 25%. The risk-free interest rate is 6% per annum continuously compounded What is the price of a two-year American put option with strike price 9. (b) [8 marks] The Black-Scholes formula for the price c of a European call option on a non-dividend-paying stock is - SN(d) - Ke-N(dz) where In(S/K) + ( + 0/2)T In(S/K) + (r - 02/2)T di OVT Here S is the stock price, K is the strike price, o is the volatility of the stock, T is the time to expiry, and r is the continuously compounded risk-free interest rate. Find the price of a European call option on a non-dividend-paying stock when the stock price is 12, the strike is 10, the risk-free rate is 4%, the volatility is 20% and the time to maturity is 1 year