]

Problem 7. ( 12 points total) Suppose that the risk-free interest rate is 5% per 6-month period and we wish to value a call option with exercise price $110 that expires in 1 year using the binomial option pricing tree below. fud fa fdd In each period (6 months), the stock price can either increase by 10%(u-11) or decrease by 5% (d 0.95). The stock is currently selling at 100, What must be the f, the price of this call option? Hint: Solve for fu first. (4 points) Then, solve for fa. (4 points) Then, use the fu and fa to solve for the answer f (4 points)l