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Assume that the present price of a stock is S 0 = 1 . Every three months stock price moves up by a factor u

Assume that the present price of a stock is S0=1. Every three months stock price
moves up by a factor u or moves down by a factor d. The three month interest rate is r.
Draw the binomial tree [7.5 Points]
Derive the price of an European call option where the strike price K satisfies fol-
lowing inequality: [7.5 points]
u2d>K
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