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

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Each of the following questions should be answeredby building a 15-period binomial model IN EXCEL whoseparameters should be calibrated to a Black-Scholes geometricBrownian motion model with: T =.25 years, S0 =100, r=2%,σ=30% and a dividend yield of c=1%. Your binomial model should usea value of u = 1.0395 and d = 1/u = 0.96201. (This has been roundedto four decimal places but you should not do any rounding in yourspreadsheet calculations.)
6.Compute the price of an American call option with strike K =110 and maturity T = .25 years.
7.Compute the price of an American put option with strike K =110 and maturity T = .25 years.
8. Is it ever optimal to early exercise the put option ofQuestion 2?
9. 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.)
10. Do the call and put option prices of Questions 1 and 2satisfy put-call parity?
11. Identify four conditions under which an arbitrageopportunity will exist with reference to the option price youcomputed in (1) above and briefly explain how such an opportunitycan be exploited.