Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, and the time to its maturity is 6 months. Assume that the volatility of the underlying stock is 30% per year and the risk-free rate is 4%.

(a). Value the option using a two-step tree. Also you need to present a hedging strategy for the option writer.

(b). Repeat part a if the option is American style.