a a Problem #5: Consider an American call option on a stock, with a $57 strike and 1-year to expiration. The stock has a [9 marks] continuous dividend yield of 5%, and its current price is $56. Suppose the volatility of the stock is 26%. The continuously compounded risk-free interest rate is 5%. Use a three-period binomial tree to calculate the following: a (a) The payoff at time 2: Up movement. (b) The payoff at time 2: Middle movement. (c) The payoff at time 2: Down movement. (d) The payoff at time 1: Up movement. (e) The payoff at time 1: Down movement. (f) The option cost at time 0. m (A) 20.61 (B) 22.61 (C) 19.61 (D) 18.61 (E) 21.61 Problem #5(a): Select Part (a) choices. (A) 5.67 (B) 3.67 (C) 4.67 (D) 6.67 (E) 2.67 Problem #5(b): Select Part (b) choices. (A) -4.00 (B)-1.00 (C) 0.00 (D) -3.00 (E)-2.00 Problem #5(c): Select Part (c) choices. (A) 9.41 (B) 8.41 (C) 10.41 (D) 7.41 (E) 6.41 Problem #5(d): Select Part (d) choices. (A) 1.67 (B)-0.33 (C)-1.33 (D) 2.67 (E) 0.67 Problem #5(e): Select Part (e) choices. (A) 3.62 (B) 4.62 (C) 2.62 (D) 1.62 (E) 5.62 Problem #5(f): Select Part (f) choices. Save a a Problem #5: Consider an American call option on a stock, with a $57 strike and 1-year to expiration. The stock has a [9 marks] continuous dividend yield of 5%, and its current price is $56. Suppose the volatility of the stock is 26%. The continuously compounded risk-free interest rate is 5%. Use a three-period binomial tree to calculate the following: a (a) The payoff at time 2: Up movement. (b) The payoff at time 2: Middle movement. (c) The payoff at time 2: Down movement. (d) The payoff at time 1: Up movement. (e) The payoff at time 1: Down movement. (f) The option cost at time 0. m (A) 20.61 (B) 22.61 (C) 19.61 (D) 18.61 (E) 21.61 Problem #5(a): Select Part (a) choices. (A) 5.67 (B) 3.67 (C) 4.67 (D) 6.67 (E) 2.67 Problem #5(b): Select Part (b) choices. (A) -4.00 (B)-1.00 (C) 0.00 (D) -3.00 (E)-2.00 Problem #5(c): Select Part (c) choices. (A) 9.41 (B) 8.41 (C) 10.41 (D) 7.41 (E) 6.41 Problem #5(d): Select Part (d) choices. (A) 1.67 (B)-0.33 (C)-1.33 (D) 2.67 (E) 0.67 Problem #5(e): Select Part (e) choices. (A) 3.62 (B) 4.62 (C) 2.62 (D) 1.62 (E) 5.62 Problem #5(f): Select Part (f) choices. Save