A stock price is currently $50. Over each of the next two 2-month periods it is expected to go up by 6% or down by 4%. The risk-free interest rate is 5% per annum with continuous compounding.
(a) What is the value of a 6-month European call option with a strike price of $52 using a three-step binomial tree?
(b) Draw the tree mark the value of the option on each nod of the tree.