# Interest rates are expressed as annualized rates for the term specified. Report your interest rate answers as fractional numbers like 0.11 for 11% per year.
Q- Consider a European Call and a European Put option on a stock trading at a price of A1. The exercise price of either option is A2 and the time to maturity is A3 months. The stock's volatility (sigma) is A4 per annum, and the risk-free interest rate is A5 percent per annum, continuously compounded. Use a five step binomial model to find the current fair values of the call and put options.
Write the six risk-neutral probability weights from top to bottom of stock price realizations at maturity:
Write the six values (cash flows) of the Call option from top to bottom at maturity:
Write the six values (cash flows) of the Put option from top to bottom at maturity:
Write the current fair value of the European Call
Write the current fair value of the European Put
Write the value of "u"
Write the value of "p":
A1=48.94
A2=46.94
A3=18.38
A4=0.8094
A5=6.188