Question: 1. Consider applying the binomial method to price American options. Suppose that stock in the XYZ Company is priced at 0 = 100 and consider

1. Consider applying the binomial method to price American options. Suppose that stock in the XYZ Company is priced at 0 = 100 and consider options that are at the money = 100. The options mature in = 1 year, which we divide into = 3 periods, each of length = 0.6. = 1 . The risk-free rate is = 0.03 and XYZ stock has a volatility of = 3 (a) Calculate the magnitude of upticks u and downticks d, as well as the risk-neutral probability . (b) Draw the stock price tree and calculate the payos to call and put options at each final price

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