Consider an option to buy 12,500 for 10,000. In the next period, the euro can strengthen against the pound by 25% (i.e., each euro will buy 25% more pounds) or weaken by 20%. Big hint: don't round. Keep exchange rates out to at least four decimal places.

	Spot Rates			Risk-Free Rates
S0($/)	$1.60 =1.00		i$	3.00%
S0($/)	$2.00 =1.00		i	4.00%
S0(/)	??		i	5.00%

1/ Using the information above for a call option, draw the binomial tree (Show all end-node values). Note that you must calculate Su, Sd, Cu, and Cd. Make sure you use the Forward rate under IRP as the exercise price.