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(1 point) A stock will pay a dividend D att=tp to the stock price no longer includes this non-random component. To apply the binomial tree method, we construct a binomial tree for the random component of the stock. Then we construct a binomial tree for the stock S by adding the non-random component to the tree for S. Finally we construct the option values, based upon the binomial tree of stock values by working back from t =T. Let So = 86.5 stock price at t = 0 K 90 strike price for option 7 0.0175 risk-free interest rate o= 0.21 volatility D 0.56 value of dividend (dollars) tp = 0.125 time dividend is paid ( years ex-date") T= 0.166667 expiration time (years) M 2 number of subintervals of time for binomial trees At 0.166667 time increment 2 Let S model the "random" part. Then S(4) = [56 [S(t) - Detpt) 0 to the stock price no longer includes this non-random component. To apply the binomial tree method, we construct a binomial tree for the random component of the stock. Then we construct a binomial tree for the stock S by adding the non-random component to the tree for S. Finally we construct the option values, based upon the binomial tree of stock values by working back from t =T. Let So = 86.5 stock price at t = 0 K 90 strike price for option 7 0.0175 risk-free interest rate o= 0.21 volatility D 0.56 value of dividend (dollars) tp = 0.125 time dividend is paid ( years ex-date") T= 0.166667 expiration time (years) M 2 number of subintervals of time for binomial trees At 0.166667 time increment 2 Let S model the "random" part. Then S(4) = [56 [S(t) - Detpt) 0