We want to price options using the binomial lattice the, Financial Accounting

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We want to price options using the binomial lattice the

We want to price options using the binomial lattice. The current stock price is 54 and the strike price is 50. Assume that the stock up-trend rate is u = 1.2 with probability p = 0.4 and the down-trend rate is d = 0.8 with probability 1 − p = 0.6. The annual risk-free rate is r = 0.005. Assume that the length of a period is one month.

1. Construct a binomial lattice that gives the price of a 5-month European call option.

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Financial Accounting: We want to price options using the binomial lattice the

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