Question: 1 . a . A stock price is currently ( 5 0 ) . Over the next two 3 - month periods it

1. a. A stock price is currently \(50\). Over the next two 3-month periods it is expected to go up by \(8\%\) or down by \(6\%\). The risk-free interest rate is \(5\%\) per annum with continuous compounding. What is the value of a 6-month European put option with a strike price of \(52\)? b. For the situation in (a), what is the value of a 6-month European call option with strike price of \(52\)? Verify that the European call and European put option satisfy the put-call parity. c. If the call option in (b) were American, would it ever be optimal to exercise it early at any of the nodes on the tree?
1 . a . A stock price is currently \ ( 5 0 \ ) .

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