The following two-step binomial tree depicts thequarterlyprice path of an underlying share for anAmerican call option. Each step represents a quarter of a year. The strike price of this option is $40 and the risk free rate is 7% pa.

Binomial Share Prices

a)$48.00

b)$50.88

c)$45.12

d)$53.93

e)$47.83

f)$42.41

a)Calculate the payoff of the option at point (b). Give your answer in dollars and cents to the nearest cent.

Payoff at point (b) =$

b)Calculate the value of the option at point (b). Give your answer in dollars and cents to the nearest cent.

Value of the option at point (b) =$