Consider a 3-month put option. Suppose that the underlying stock price is $25, the strike $26, the interest rate is 5% p.a., stock volatility is 6% per month. Use the same data to answer questions

a. Build the binomial tree for the underlying asset (stock). Note: the tree nodes can be edited. Show computations for first up and first down nodes.

b. Compute the price of the European put option using a 3-step binomial tree. Show computations for terminal and two non-terminal nodes.

c. If the market price on the European put option is $1.5, what should be the price of the European call option of the same strike and maturity to prevent arbitrage?

d. Compute the price of the American put option using a 3-step binomial tree. Show computations for two non-terminal nodes.