Binomial Pricing. (This was 30% of the midterm exam a few years ago!) The stock of Ranco (RNC) is currently trading at $208. In one period RNC will distribute a dividend of 3.846% (i.e., 1/26) of its stock price on the dividend date. (a) (5 points) Draw the two-period binomial stock price tree for RNC, assuming that every period RNC either goes up 30%(u=1.3) or down 20%(d=0.8). - Remember to include the dividend! (b) (5 points) The simple one-period risk-free rate is 2%(r=1/50). What is the risk-neutral probability of RNC's stock going up? (c) (5 points) Draw the price tree for the two-period at-the-money (i.e., K=208 ) European call on RNC. (d) (5 points) Now do the American! - The two-period ATM American call