Question: Question III: Consider a one-period binomial model with h = 1, where S = $100, r = 0, 0 = 30%, and 8 = 0.08.

Question III: Consider a one-period binomial model with h = 1,

Question III: Consider a one-period binomial model with h = 1, where S = $100, r = 0, 0 = 30%, and 8 = 0.08. Compute American call option prices for K = $70, $80, $90, and $100. (a) At which strike(s) does early exercise occur? (b) Use put-call parity to explain why early exercise does not occur at the higher strikes. (c) Use put-call parity to explain why early exercise is sure to occur for all lower strikes than that in your answer to (a). Question III: Consider a one-period binomial model with h = 1, where S = $100, r = 0, 0 = 30%, and 8 = 0.08. Compute American call option prices for K = $70, $80, $90, and $100. (a) At which strike(s) does early exercise occur? (b) Use put-call parity to explain why early exercise does not occur at the higher strikes. (c) Use put-call parity to explain why early exercise is sure to occur for all lower strikes than that in your answer to (a)

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