PLEASE SHOW WORKINGS :)

1. Use the binomial tree technique to price an 8 month American call option with strike price $40, written on a $42 stock. Use a four step tree, with two month time steps. Annual volatility is 25%. The stock pays dividends at a continuous rate of 2% a year. Interest rates are 5%, with continuous compounding. (10 marks) 1. Use the binomial tree technique to price an 8 month American call option with strike price $40, written on a $42 stock. Use a four step tree, with two month time steps. Annual volatility is 25%. The stock pays dividends at a continuous rate of 2% a year. Interest rates are 5%, with continuous compounding. (10 marks)