7. (Binomial model with two periods; 1 point.) The continuously compounded interest rate is 9.53102% per year, and each period is one year long, implying that the simple interest rate is 20.0953102 1 = 0.1 or 10% per period. The current price of BIN stock is $40 per share, and each period the price will either increase by 100% or decrease by 50% (that is, u= 2 and d=0.5). BIN stock does not pay dividends. (a) (1/2 point) What is the theoretical price of a two-period American put option with an exercise price of $50? (b) (1/2 point) What is the theoretical price of a two-period American call option with an exercise price of $50? 3 7. (Binomial model with two periods; 1 point.) The continuously compounded interest rate is 9.53102% per year, and each period is one year long, implying that the simple interest rate is 20.0953102 1 = 0.1 or 10% per period. The current price of BIN stock is $40 per share, and each period the price will either increase by 100% or decrease by 50% (that is, u= 2 and d=0.5). BIN stock does not pay dividends. (a) (1/2 point) What is the theoretical price of a two-period American put option with an exercise price of $50? (b) (1/2 point) What is the theoretical price of a two-period American call option with an exercise price of $50? 3