Suppose that we are in a two-period world (t = 0, 1, 2). The current (t = 0) price of a stock is $100. Each period, its value can either increase by 10% or decrease by 5%. The risk-free rate is 2% per period.

1. Draw a tree of the possible future stock prices.

2. What is the value of a European call option on the stock with a strike price of $110 and a maturity of t = 2?

3. What is the value of a European put option on the stock with a strike price of $110 and a maturity of t = 2?