Consider a 11-period binomial model with R=1.02R=1.02, S_0 = 100S 0 =100,
1.05=u=1/d1.05=u=1/d. Compute the value of a European call option on the stock with strike K=102K=102. The stock does not pay dividends. When you construct the replicating portfolio for the option in the previous question how many dollars do you need to invest in the cash account?

Brandt enterprises is considering a new project that has a cost of $1,000,000, and the cfo set up the following simple decision tree to show its three most likely scenarios. the firm could arrange with its work force and suppliers to cease operations at the end of year 1 should it choose to do so, but to obtain this abandonment option, it would have to make a payment to those parties. how much is the option to abandon worth to the firm?