Please do not use the other persiosuly answered answer of this question.

1 An American Call Option The current price of one share of the ABC stock is 40 dollars. The stock is expected to pay a continuously compounded dividend yield of 10% per year. The current interest rate is 2% per year. The volatility of the stock return is assumed to be 30% per year. 1. Consider a European option with strike price 38 dollars per share and a maturity of six months. Use McDonald's formula to find out u and d and draw a binomial tree of stock price movement. 2. Calculate the price of the call option at node 0 . You may use the replicating portfolio or the risk-neutral probability method. 3. Consider an otherwise identical American option (That is, you are now allowed to exercise the option at node u and d ). Do you want to exercise the American option at node u ? Do you want to exercise the American option at node d ? Explain why