Each of the following questions should be answered by building a 15-period binomial model whose parameters should be cal

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Each of the following questions should be answered by building a15-period binomial model whose parameters should be calibrated to aBlack-Scholes geometric Brownian motion model with: T =.25 years,S0 =100, r=2%, σ=30% and a dividend yield of c=1%. Your binomialmodel should use a value of u = 1.0395 and d = 1/u = 0.96201. (Thishas been rounded to four decimal places but you should not do anyrounding in your spreadsheet calculations.)
1.Compute the price of an American call option with strike K =110 and maturity T = .25 years.
2.Compute the price of an American put option with strike K =110 and maturity T = .25 years.
3. Is it ever optimal to early exercise the put option ofQuestion 2?
4. If your answer to Question 3 is “Yes”, when is the earliestperiod at which it might be optimal to early exercise? (If youranswer to Question 3 is “No”, then you should submit an answer of15 since exercising after 15 periods is not an early exercise.)
5. Do the call and put option prices of Questions 1 and 2satisfy put-call parity?
6. Identify four conditions under which an arbitrage opportunitywill exist with reference to the option price you computed in (1)above and briefly explain how such an opportunity can beexploited