A call and put expire in 150 days and have an exercise price of $100. The underlying stock is worth $ 95 and has a standard deviation of 0. The…

A call and put expire in 150 days and have an exercise price of $100. The underlying stock is worth $ 95 and has a standard deviation of 0.25. The annual risk-free rate is 11 percent. The annual dividend yield o the stock is 2%. Use the three period binomial model (i.e. binomial approximation to BS model) in estimating the option prices.

A. Estimate the call price today under the assumption that the stock does not pay any dividend. You would need to find first U,D, before you can find the call price. (C )

B. Now estimate the call price today under the annual dividend yield of 2% as given above in the question. (You would need to re-estimate   U and   D before you can find the call price ( C)

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