Question 3 [20 marks] Consider the binomial model for an American call and put on a stock whose price is $90. The exercise price for both the put and the call is $65. The standard deviation of the stock returns is 25 percent per annum, and the risk-free rate is 3 percent per annum. The options expire in 120 days. The stock will pay a dividend equal to 2 percent of its value in 60 days. (a) Draw the three-period stock tree and the corresponding trees for the call and the put. [7.5 marks] (b) Compute the price of these options using the three-period trees. [7.5 marks] (c) Explain when, if ever, each option should be exercised. [5 marks]