3. Consider the three period (N - 3) binomial model with So-4, the "up factor" u-2, the "down factor" d - 1/2 and the risk-free interest rate is r-1/4. Draw the binomial tree and find the time-zero price and optimal exercise time for an American style call contract with strike price K - 32. This derivative gives the owner the right to purchase the stock for $32 up to the time t -3. At time t -3, if they have not already purchased the stock by exercising the contract, they must purchase it for $32 (even if they lose money). Thus the intrinsic value is the same as a call option Gn- Sn- K 3. Consider the three period (N - 3) binomial model with So-4, the "up factor" u-2, the "down factor" d - 1/2 and the risk-free interest rate is r-1/4. Draw the binomial tree and find the time-zero price and optimal exercise time for an American style call contract with strike price K - 32. This derivative gives the owner the right to purchase the stock for $32 up to the time t -3. At time t -3, if they have not already purchased the stock by exercising the contract, they must purchase it for $32 (even if they lose money). Thus the intrinsic value is the same as a call option Gn- Sn- K