Question 6 (10 Marks) The current price of a non-dividend paying technology stock is $100 with a volatility of 25%. The risk-free rate is 6%. For a six-month time (of ?) each step, answer following questions. 1. What is the percentage of price increasing movement (U)? (1 mark) 2. What is the percentage of price decreasing movement (D)? (1 mark) 3. What is the probability of an up movement in a risk-neutral world (p)? (1 mark) 4. What is the probability of a down movement in a risk-neutral world (p)? ( 1mark) 5. Draw a diagram of a two-step binomial tree to value and 1-year European call option. The strike price is $130. Find value of option at node fu and f. (6 marks) Question 6 (10 Marks) The current price of a non-dividend paying technology stock is $100 with a volatility of 25%. The risk-free rate is 6%. For a six-month time (of ?) each step, answer following questions. 1. What is the percentage of price increasing movement (U)? (1 mark) 2. What is the percentage of price decreasing movement (D)? (1 mark) 3. What is the probability of an up movement in a risk-neutral world (p)? (1 mark) 4. What is the probability of a down movement in a risk-neutral world (p)? ( 1mark) 5. Draw a diagram of a two-step binomial tree to value and 1-year European call option. The strike price is $130. Find value of option at node fu and f. (6 marks)