Problem:
Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is 6 months.
Question 1: Calculate u, d, and p for a two-step tree.
Question 2: Value the option using a two-step tree formula.
Note: Please provide equation and explain comprehensively and give step by step solution.