Risk-Neutral Valuation Question

DO NOT USE EXCEL, PLEASE SHOW STEPS TYPED

PART ONE

A stock is currently priced at $77. The stock will either increase or decrease by 16 percent over the next year. There is a call option on the stock with a strike price of $75 and one year until expiration. If the risk-free rate is 8 percent, what is the risk-neutral value of the call option?

PART TWO

In the previous question, assume the risk-free rate is only 5 percent. What is the risk-neutral value of the option now? What happens to the risk-neutral probabilities of a stock price increase and a stock price decrease?