10.12 Let S = $100, K = $95, r = 8% (continuously compounded), = 30%, = 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.

10.13 Repeat the previous problem assuming that the stock pays a continuous dividend of 8% per year (continuously compounded). Calculate the prices of the American and European puts and calls. Which options are early-exercised?

Question: End-of-Chapter Problem 10.13: Repeat Problem 10.12 assuming that the stock pays a continuous dividend of 8% per year (continuously compounded). Calculate the price of the European calls. Find the closest price. [Reference: End-of-Chapter Problem 10.12]

Answers: 13.9, 14.2, 14.8, 15.1