1. Consider a six-month European call option on a non-dividend-paying stock. The stock price is $30, the strike price is $29, and the continuously compounded risk-free interest rate is 6% per annum. The volatility of the stock is 20% per annum.

1)Value this option using the Black-Scholes formula. Illustrate each step in your

calculation.

2)Please use a one-step binomial tree to value this option.

3)Please use a two-step binomial tree to value this option.

4)Compare the results from 2) to 3) with what you get using the Black-Scholes-

Merton formula.