You are considering buying options on ALZ Investments Corp (ticker: ALZ) stock. The stock price could be either 10 or 20 next period. There are two options you are considering. The first is a European call option with strike 17, whose price is 1.56. The second is a European put option with strike 12, whose price is 0.92. Calculate the risk-free rate, and the current price of ALZ stock. (Hint: use a one-step binomial tree).
1) Find risk-free rate with risk neutral probability formula
Or
2) Use put-call parity, build two unknown (risk-free rate and current price) and solve it simulteneously.
*must use one-step binomial tree