Question: Let S = $45, r = 3% (continuously compounded), d = 5%, s = 30%, T = 1.5. In this situation, the appropriate values of

Let S = $45, r = 3% (continuously compounded), d = 5%, s = 30%, T = 1.5. In this situation, the appropriate values of u and d are 1.27738 and 0.75972, respectively. Using a 2-step binomial tree, calculate the value of a $40-strike European call option.

a.$7.037

b.$8.305

c. $7.783

d.$8.141

e.$7.960

Let S = $40, r = 8% (continuously compounded), d = 1%, s = 25%, T = 2. In this situation, the appropriate values of u and d are 1.37713 and 0.83527, respectively. Using a 2-step binomial tree, calculate the value of a $45-strike American put option.

a.$4.987

b.$6.159

c.$6.014

d.$5.402

e.$4.603

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