For the following two-period tree of stock DEW over the next year, a call option and a put option are available. The risk-free rate is 5% per period.

36.30

33

29.70

30

24.30

27

a) Use the binomial option pricing model to calculate the present value of the call option with exercise price of $28. (7 marks)

b) Use the binomial option pricing model to calculate the present value of the put option with exercise price of $28. (7 marks) c)

c) Using put-call parity relationship verify that your answers from a) and b) are correct.