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Business, 20.04.2021 19:00 clairefc2019

Suppose that the risk free rate is 5% per year. We wish to value a 2-year American call option with a strike price of $110. The current stock price is $100. Each year, the stock price either increases 10%, or decreases by 5% Here are the steps for you to solve the problem a) Construct a two-period binomial tree for the value of the stock. (5 points) b) Calculate the value of the American call option. (10 points)

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Suppose that the risk free rate is 5% per year. We wish to value a 2-year American call option with...
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