A stock price is currently $40. It is knows that at the end of six month, it will be either $50 or $30. The risk-free rate of interest with continuous compounding is 8% per annum.
Calculate the value of a four-month European call option on the stock with an exercise price of $42, using binomial model and
(a) no-arbitrage argument, and
(b) risk-neutral valuation approach.