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Unformatted text preview: stock. The payments made by the stock in each state are shown in the tree below. The bond pays 10 percent interest each period. Figure 1: Lattice for the Stock (i) Calculate the price in period 0 of an American call (buy) option that expires at the end of period 2 with an exercise price of 1.60. Explain how you arrived at your answer. (ii) Calculate the price in period 0 of an American put (sell) option that expires at the end of period 2 with an exercise price of 1.60. Explain how you arrived at your answer. 1...
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 '11
 valentyn
 Economics

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