Consider the 4-period binomial model. The current stock price(S0) is $100, and possible prices for the next period are $105 and $97. Assume the periodic risk-free rate is 1%.

a. Graph the binomial tree for future stock prices.

b. Calculate the prices for call and put options, which are at-the-money at period 0 and mature at period 4, for each possible future and the current price of the stock.

Answer rating: 100% (QA)

a To graph the binomial tree for future stock prices we need to define the possible future prices of ... View the full answer