Question: Construct the binomial tree for a European call option with the following characteristics. Diagram the tree and show your calculations of the options value at

Construct the binomial tree for a European call option with the following characteristics. Diagram the tree and show your calculations of the options value at each of the nodes on the tree including its current (time t=0) value.

Stock Price= 40

risk-free-rate=1%

Volatility= 25%

Strike Price= 45

time to expiration= 12 months

no. of steps= 3

No dividends

What is the value of the option at time t=0 (node A)?

What is the value of the option at node D?

How much more is this particular American call option worth than its European call counterpart?

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