Consider european and american call options

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Consider European and American call options on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is six months.

a. Calculate u, d, and pfor a two step tree

b. Value each of the options using a two-step tree.

Reference no: EM131526767

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