Problem A-1 Consider a European Call and a European Put option on a stock trading at a price of A1.The exercise price of either option is A2 and the time to maturity is A3 months.The stock's volatility (sigma) is A4 per annum, and the risk-free interest rate is A5 percent per annum, continuously compounded.Use a five step binomial model to find the current fair values of the call and put options.

Write the six risk-neutral probability weights from top to bottom of stock price realizations at maturity:

1.

2.

3.

4.

5.

6.

Write the six values (cash flows) of the Call option from top to bottom at maturity:

7.

8.

9.

10.

11.

12.

Write the six values (cash flows) of the Put option from top to bottom at maturity:

13.

14.

15.

16.

17.

18.

19. Write the current fair value of the European Call

20. Write the current fair value of the European Put

21. Write the value of "u"

22. Write the value of "p":

a1- 44.25

a2-42.25

a3- 16.5

a4- 0.7625

a5- 5.625