Consider call and put options on a market index with a time of O value 80. The options are issued at- the-money, are of the European type and expire in half a year. The market index has volatility = 0, 25 and pays no dividends. The interest-free risk-free interest rate is r = 0, 01. a) Calculate time 0 the market prices of the call and put options described above using a 3 periodic binomial model where the up and down factors are u = covh og d = 1/u. Here h = T, where I is time to maturity and n number periods in the binomial model. It is expected that the central bank will lower the key interest rate by 0.25 percentage points. b) Assume that the risk-free interest rate also changes by as many percentage points as the key interest rate. How will the interest rate cut affect the market prices of the call and put options? Calculate the new prices. c) Explain the price changes for the two options using relevant financially theory. Short and concise answers are rewarded. Consider call and put options on a market index with a time of O value 80. The options are issued at- the-money, are of the European type and expire in half a year. The market index has volatility = 0, 25 and pays no dividends. The interest-free risk-free interest rate is r = 0, 01. a) Calculate time 0 the market prices of the call and put options described above using a 3 periodic binomial model where the up and down factors are u = covh og d = 1/u. Here h = T, where I is time to maturity and n number periods in the binomial model. It is expected that the central bank will lower the key interest rate by 0.25 percentage points. b) Assume that the risk-free interest rate also changes by as many percentage points as the key interest rate. How will the interest rate cut affect the market prices of the call and put options? Calculate the new prices. c) Explain the price changes for the two options using relevant financially theory. Short and concise answers are rewarded