(Two-period model with dividends) A call option is written on a stock whose current price is $100. The option has maturity of 2 years, and during this time the annual stock price is expected to increase by 30% or to decrease by –10%.

The annual interest rate is constant at 6%. The option’s exercise price is $110.

Extend the binomial option pricing to incorporate a $3.00 per share dividend that will be paid out in period 2.

In other words, all of the period 2 stock prices will be reduced by $3.00. Determine the current prices of the call. Compare to the non-dividend case that appears in this chapter.