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9. [3 marks] Suppose that a stock currently trades for $100, that the risk- free interest rate is 2% per annum, and European call options

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9. [3 marks] Suppose that a stock currently trades for $100, that the risk- free interest rate is 2% per annum, and European call options with expiry in 1 year have strike prices of $115 and $130, and currently trade for $1.85 and $0.40, respectively. Use a 1-period binomial tree to estimate the present value of a digital option (on the same stock with the same expiry) with a strike price of $110

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