# Question

Consider a one-period binomial model with h = 1, where S = $100, r = 0, σ = 30%, and δ = 0.08. Compute American call option prices for K = $70, $80, $90, and $100.

a. At which strike(s) does early exercise occur?

b. Use put-call parity to explain why early exercise does not occur at the higher strikes.

c. Use put-call parity to explain why early exercise is sure to occur for all lower strikes than that in your answer to (a).

a. At which strike(s) does early exercise occur?

b. Use put-call parity to explain why early exercise does not occur at the higher strikes.

c. Use put-call parity to explain why early exercise is sure to occur for all lower strikes than that in your answer to (a).

## Answer to relevant Questions

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