Let S = $65, r = 3% (continuously compounded), d = 5%, s = 30%, T = 2. In this situation, the appropriate values of u and d are 1.32313 and 0.72615, respectively. Using a 2step binomial tree, calculate the value of a $55strike European call option. 


here , S0 = current stock price
Su = stock price after 1 year if stock price increases
Sd = stock price after 1 year if stock price decreases
Suu = stock price after 2 years if stock price increases
Sdd = stock price after 2 years if stock price decreases
Sud = stock price after 2 years if stock price after 1 year increases and in the 2nd year it decreases
fu = value of option after 1 year if stock price increases
fd = value of option after 1 year if stock price decreases
fuu = value of option after 2 years if stock price increases
fdd = value of option after 2 years if stock price decreases in both years
fud = value of option after 2 years if stock price increases after 1st year and decreases after 2nd year
f = value of option today
hence the correct option is c) 13.458
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