Problem 2: We consider a call option on a stock. The current price of the underlying is So = 40 and the strike of the option is K = 38. The time to expiration is two weeks. We want to use a two-step binomial model to get a rough estimate on the fair price of the call. We neglect interest rates and estimate that the stock price goes up or down by 5% each week. (a) Draw the graph that represents the two-step binomial model in this case, where at each node of the graph you indicate the stock price and the fair value of the call. (6pts) (b) What is the current fair value c of the call? (1pt) (c) Suppose we want to compare the value c in (b) with the value obtained from the Black-Scholes formula. Which values for o and T should we take here? (3pts)