Consider a six-month European-style call option on a non-dividend paying stock. The stock price is currently $50, and the exercise price on the call option is $48. The risk-free rate of interest with continuous compounding is 12% per annum. We are interested in valuing the call option using the binomial tree valuation method, assuming that at the end of six months the stock price will be either $60 or $42 (only two prices are possible). What should be the value of the above call option? Solve it using both the no-arbitrage argument approach and the risk-neutral valuation approach.

No-Arbitrage Argument Approach

(Hint: Create a riskless portfolio)