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4. For a two-period binomial model, you are given: (i) Each period is one year. (ii) The current price for a non-dividend-paying stock is 20.
4. For a two-period binomial model, you are given:
(i) Each period is one year.
(ii) The current price for a non-dividend-paying stock is 20.
(iii) u = 1.2840, where u is one plus the rate of capital gain on the stock per period if the stock price goes up.
(iv) d = 0.8607, where d is one plus the rate of capital loss on the stock per period if the stock price goes down.
(v) The continuously compounded risk-free interest rate is 5%.
Calculate the price of an American call option on the stock with a strike price of 22.
mark value = 5
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