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C and D please (Hull, 12.25 modified) Consider a European call option on a non-dividend-paying...

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Accounting

C and D please

(Hull, 12.25 modified) 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 6% per annum, the volatility is 30% per annum, and the time to maturity is six months.

(a) Calculate u, d, and p for a two step tree

(b) Value the option using a two step tree.

(c) Verify that DerivaGem gives the same answer

(d) Use DerivaGem to value the option with 5, 50, 100, and 500 time steps.

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