Information about the underlying asset: spot price 100, expected return 15%, volatility 20%.

Information about the market: risk-free rate 5.00%.

a)n Consider a Cox-Ross-Rubinstein (CRR) binomial tree, in which one time step is 4 months. Calculate the up-factor u, and down-factor d, and show how to get the probability (of price moving up) p?

b)Consider an at-the-money American put option maturing in 1 year. Build a 3-step CRR binomial tree (i.e. show the price changes).

c)Calculate the option price using the tree in question (b) and show the early exercise points if there is any.