Question: 11.1 Consider a one-period binomial model with h =1, where S =$100, r =0, =30%, and =0.08. Compute American call option prices for K =$70,

11.1Consider a one-period binomial model withh =1, whereS=$100,r =0,=30%,

and=0.08. Compute American call option prices forK=$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).

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