# Question: Let S 100 K 95 r 8

Let S = $100, K = $95, r = 8% (continuously compounded), σ = 30%, δ = 0,

T = 1 year, and n = 3.

a. Verify that the binomial option price for an American call option is $18.283.

Verify that there is never early exercise; hence, a European call would have the same price.

b. Show that the binomial option price for a European put option is $5.979.

Verify that put-call parity is satisfied.

c. Verify that the price of an American put is $6.678.

T = 1 year, and n = 3.

a. Verify that the binomial option price for an American call option is $18.283.

Verify that there is never early exercise; hence, a European call would have the same price.

b. Show that the binomial option price for a European put option is $5.979.

Verify that put-call parity is satisfied.

c. Verify that the price of an American put is $6.678.

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