The price of an insurance non-dividend stock is $150. The volatility is 20% and the risk-free rate (all maturities) is 4% per year with continuous compounding. Use a three-step binomial tree to value a three years European Put option with strike price $180. Choose one of these methods to calculus a solution ONLY ONE

Required binomial tree: a) Design a three-step tree and include the prices of the stock and the value of the option on every node. Calculate: Per cent % of up and down movements + Probability of up and down movements.

b) Use that Put-Call parity to find the value of a European Call option.

c) If the premium for a European call option is $4, is there any arbitrageur opportunity? Explain the strategy and find the profit.