Question
KPT stock's current price is $100, over the next 3 years, the stock price will either increase 60% or decrease 37.5% each year. The risk
KPT stock's current price is $100, over the next 3 years, the stock price will either increase 60% or decrease 37.5% each year. The risk free rate of return is 6% per year. KPT stock pays 35% dividends per year and the ex-dividend date is at year 1. There is one option with exercise price of =$100 and maturity = 3 years . Use 3 - time period binomial model to calculate the option price as of today for the following cases:
1. Suppose it is European call option
2. Suppose it is European put option
3. Suppose it is American call option
4. Suppose it is American put option
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