Let s300 k300 r10 risk-free interest rate continuously, Ask an Expert

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Let S=$300, K=$300, r=10% risk-free interest rate, (continuously compounding), T=3 years, n=3, three-period binomial tree, \delta=6.5%, continuous dividend yield on the stock, u=1.25, and d=0.7.

a) Construct the binomial tree for the stock

b) Compute the prices of American and European calls.

c) Compute the prices of American and European puts by using risk-neutral approach.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92319548

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