Consider a European call option on a non$-$dividend$-$paying stock where the stock price is $$40,$ the strike

price is $$40,$ the risk$-$free rate is $4\%$ per annum, the volatility is $30\%$ per annum, and the time to maturity

is six months.

a$.$ Calculate u $,$ d $,$ and p for a two step tree.

b$.$ Value the option using a two step tree.

c$.$ Use the attached excel file to verify that it gives the same answer.