Calculate the value of the buffelhead call option

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Buffelhead's stock price is $232 and could halve or double in each six-month period. A one-year call option on Buffelhead has an exercise price of $177. The interest rate is 21% a year.

Assume the option is American and that at the end of the first six months the company pays a dividend of $24. (Thus, the price at the end of the year is either double or half the ex-dividend price in month 6.)

a. Calculate the value of the Buffelhead call option.

b. Calculate the value of the Buffelhead call option if it were European-style.

Reference no: EM132653015

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