(Mark Value = 5)

4. For a two-period binomial model, you are given:

1. (i) Each period is one year.

2. (ii) The current price for a nondividend-paying stock is 20.

3. (iii) u = 1.2840, where u is one plus the rate of capital gain on the stock per period if the stock

   price goes up.

4. (iv) d = 0.8607, where d is one plus the rate of capital loss on the stock per period if the stock

   price goes down.

5. (v) The continuously compounded risk-free interest rate is 5%.

Calculate the price of an American call option on the stock with a strike price of 22.