Question: Calculate u, d and p when a one-step binomial tree is constructed to value an option on: (a) A European call option on dividend-paying stocks

Calculate u, d and p when a one-step binomial tree is constructed to value an option on:

(a) A European call option on dividend-paying stocks paying a continuous dividend yield of 2% where the stock price is 40, the strike price is 40, the risk-free rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is 4 months. Please give explanation

(b) A foreign currency. The tree step size is 3-months, the domestic interest rate is 3.5% per annum, the foreign interest rate is 5.5% per annum and the volatility of this exchange rate has a volatility of 15% per annum. Please give explanation

(c) A futures contract. The risk-free rate is 10%, the time to maturity is 6 months, and the volatility is 40% per annum. Please give explanation

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