Let S=$300, K=$300, r=10% risk-free interest rate, (continuously compounding), T=3 years, n=3, three-period binomial tree, =6.5%, continuous dividend yield on the stock, u=1.25, and d=0.7.

a. Construct the binomial tree for the stock.

b. Compute the prices of American and European calls.

c. Compute the prices of European and American puts by using risk-neutral approach.