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a.What is the value of an American call option on XYZ shares, with an exercise price of $125 and two months to expiration? Use the

a.What is the value of an American call option on XYZ shares, with an exercise price of $125 and two months to expiration? Use the binomial model to obtain the answer.

(12 marks)

b.Draw a binomial tree diagram for this American call option, showing the share price, call price, and whether the call should be exercised at each state during the next two months.(2 marks

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