Consider an n = 1 step binomial tree with T = .5. Suppose r, the annualized risk-free rate is 8 %, and delta, the annualized dividend rate is 7 %. Also suppose the annualized standard deviation of the continuously compounded stock return, sigma, is 45 %. Suppose further that the initial stock price, S = $ 90; and that the strike price K is $ 122.





a) Determine the European call premium ?



b) Determine the European put premium ?