The volatility of a non-dividend-paying stock whose price is $80, is 25%. The risk-free

rate is 5% per annum (continuously compounded) for all maturities. Calculate values for

u, d, and p when a two-month time step is used. What is the value of a four-month

European call option with a strike price of $82 given by a two-step binomial tree.

Suppose a trader sells 1,000 options (10 contracts). What position in the stock is

necessary to hedge the traders position at the time of the trade?