Question: 2. Consider a two-period binomial model where a non-dividend paying stock's value evolves as follows: Suppose each period is one year. The risk-free rate is

2. Consider a two-period binomial model where a non-dividend paying stock's value evolves as follows: Suppose each period is one year. The risk-free rate is 10% per year. Consider an European call option that matures in two years and has a strike price K=$10. (a) What are the up and down factors (u and d) ? (b) What is the value of the call if the stock's price becomes Su ? What is the value of the call if the stock's price becomes Sd ? (c) What is value of the call at time zero? (d) If the call was an American option, what would be the value of the call at time zero? 2. Consider a two-period binomial model where a non-dividend paying stock's value evolves as follows: Suppose each period is one year. The risk-free rate is 10% per year. Consider an European call option that matures in two years and has a strike price K=$10. (a) What are the up and down factors (u and d) ? (b) What is the value of the call if the stock's price becomes Su ? What is the value of the call if the stock's price becomes Sd ? (c) What is value of the call at time zero? (d) If the call was an American option, what would be the value of the call at time zero

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