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4.On March 26th, Microsoft (MSFT) had a current stock price of $234.00. A 3-month MSFT call option with a strike price of 235.00 has volatility
4.On March 26th, Microsoft (MSFT) had a current stock price of $234.00. A 3-month MSFT call option with a strike price of 235.00 has volatility of 24.74% and a call premium of $10.50. The dividend yield is 2.25%. Assume the interest rate of 3.5% (continuously compounded). Construct a 3-month binomial tree.
a.Calculate the upper and lower stock prices.
b. Calculate the hedge ratio, amount to be borrowed, and the call premium.
c. How does the calculated call premium compare the market call premium.
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