Suppose that, in each period, the cost of a security either goes up by a factor of or down by a factor . Assume the initial price of the security is $100 and that the interest rate r=0. Compute the risk neutral probabilities p( price moves up) and q=1-p (price moves down for this model.

Assuming the strike price of a European call option on this security is $150, compute the possible payoffs of the call option given that the option expires in two periods. It may help to sketch a diagram of the possible security price movement over two periods.