Value of a stock is currently at $100. Volatility of that stock is 20% per year and risk-free interest rate with continuous compounding is at 4% per year. Suppose you are planning to value a 12-month European call option using a four-step binomial model. Strike price for the option is $102.

a. What are the value of u, d and q?

b. Draw stock tree using the information provided. Indicate value of stock at expiration as well as at the intermediate nodes. There should be 14 values.

c. What are the values of the option at expiration?

d. What are the values of the option at each intermediate node? There should be 9 values.

e. What is the current price of the option?