1. The current spot price for a stock is $100, using a binomial model, in every period it has been determined that the probability for this stock to go up is 70%, in this case the stock will increase in value a 12 %. If the stock goes down, the value will decrease 13%. For a call option with strike price of $186 and after 12 periods:

1) Calculate the values of the factor "u" and "d".

2) Show a diagram with the binomial development of the price for 3 periods.

3) Calculate theoretically the minimum number of times the stock should go up in order to exercise the call option.

4) Calculate the probability of exercising the call option.