Consider a European call option on a non-dividend-paying stock where the current 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 6 months.

(a) Use a two-step tree to calculate the value of this option by hand

(b) Based on the results in part (a), estimate the deltas corresponding to the stock movements over the first and second time steps.

(c) Explain what these delta values suggest when you short 1000 such call options