1. Consider a one-period binomial model with h = 1, where S = ($100), r = 0, = 30%, and = 0.08. Compute

1. 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).