Suppose that S = $50, K = $45, = 0.30, r = 0.08, and t =

Question:

Suppose that S = $50, K = $45, σ = 0.30, r = 0.08, and t = 1. The stock will pay a $4 dividend in exactly 3 months. Calculate the price of European and American call options using a four-step binomial tree.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...