The price of a call option on stock is to be determined using the binomial options pricing model. The binomial path is modeled with an uptick of 130% and a downtick of 80%. The original stock price is $100. The option has a strike price of $90. The risk free interest rate is 5% per period. (28 points) a. b. c. Calculate the risk neutral probability (5 points) Briefly explain the economic significance of a risk-neutral probability. (3 points) Draw out (with values for all nodes and branches) the binomial pricing tree for three periods. (5 points) d. What is the price of a European put option? (3 points) e. What is the price of a European call option? (3 points) f. What is the price of an American put option? (6 points) g. If you find a difference between (d) and (f) explain the difference. Where does it stem from? (2 points) Will the American call option be worth more than, less than or equal to the European call option (no calculation needed)? (1 points) h. i. Within the context of your answers above, explain the differences between American and European options, (2) The price of a call option on stock is to be determined using the binomial options pricing model. The binomial path is modeled with an uptick of 130% and a downtick of 80%. The original stock price is $100. The option has a strike price of $90. The risk free interest rate is 5% per period. (28 points) a. b. c. Calculate the risk neutral probability (5 points) Briefly explain the economic significance of a risk-neutral probability. (3 points) Draw out (with values for all nodes and branches) the binomial pricing tree for three periods. (5 points) d. What is the price of a European put option? (3 points) e. What is the price of a European call option? (3 points) f. What is the price of an American put option? (6 points) g. If you find a difference between (d) and (f) explain the difference. Where does it stem from? (2 points) Will the American call option be worth more than, less than or equal to the European call option (no calculation needed)? (1 points) h. i. Within the context of your answers above, explain the differences between American and European options, (2)