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Construct the binomial tree for the stock

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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.

Reference no: EM132491331

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