Suppose that today the stock price of the Tesla Inc is $600/share and that the volatility of the stock price is 70% per annum. Tesla Inc is not expected to pay any dividend in the next few years. The risk-free interest rate is 2% per annum with continuous compounding. European call and put options on Tesla Incs stock with strike price $700 are available. The European call and put options will both expire in 6 months. Answer questions regarding to a two-step binomial model with 3-month time step. (a) What is the percentage up movement of the stock price in the binomial model? (1 points)(rounding to 4 decimals) (b) What is the percentage down movement of the stock price in the binomial model ? (1 points) (rounding to 4 decimals) (c) What is the probability of an up movement of the stock price in the binomial model in a risk- neutral world ?(2 points) (rounding to 4 decimals) (d) Use this two-step binomial model to compute the price of the European call ? (5 points) (e) Use this two-step binomial model to compute the price of the European put ? ( 5 points)

Suppose that today the stock price of the Tesla Inc is $600/share and that the volatility of the stock price is 70% per annum. Tesla Inc is not expected to pay any dividend in the next few years. The risk-free interest rate is 2% per annum with continuous compounding. European call and put options on Tesla Inc's stock with strike price $700 are available. The European call and put options will both expire in 6 months. Answer questions regarding to a two-step binomial model with 3-month time step. (a) What is the percentage up movement of the stock price in the binomial model? (1 points)(rounding to 4 decimals) (b) What is the percentage down movement of the stock price in the binomial model ? (1 points) (rounding to 4 decimals) (c) What is the probability of an up movement of the stock price in the binomial model in a risk- neutral world ?(2 points) (rounding to 4 decimals) (d) Use this two-step binomial model to compute the price of the European call ? (5 points) (e) Use this two-step binomial model to compute the price of the European put ? (5 points) Suppose that today the stock price of the Tesla Inc is $600/share and that the volatility of the stock price is 70% per annum. Tesla Inc is not expected to pay any dividend in the next few years. The risk-free interest rate is 2% per annum with continuous compounding. European call and put options on Tesla Inc's stock with strike price $700 are available. The European call and put options will both expire in 6 months. Answer questions regarding to a two-step binomial model with 3-month time step. (a) What is the percentage up movement of the stock price in the binomial model? (1 points)(rounding to 4 decimals) (b) What is the percentage down movement of the stock price in the binomial model ? (1 points) (rounding to 4 decimals) (c) What is the probability of an up movement of the stock price in the binomial model in a risk- neutral world ?(2 points) (rounding to 4 decimals) (d) Use this two-step binomial model to compute the price of the European call ? (5 points) (e) Use this two-step binomial model to compute the price of the European put ? (5 points)