Please include the formula with relevant workings.

Thanks in advance.

Question 6 A nine-month American call option on RAYCO stock has an exercise price of $25. The current RAYCO stock price is $25 and the stock price is expected to either rise 15% or fall 12% every three months. RAYCO is expected to pay a dividend of $1.00 in eight months' time. The risk-free rate is 3% pa. (continuously compounded) for all maturities. The option is to be priced using a three-period binomial model Required (a) Calculate the adjusted stock price at time zero. (b) Draw the stock price tree diagram for the 'adjusted' stock price and (2 marks) show the expiration date payoffs on the call option. (6 marks)