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Prices of a stock are modeled with a 1-period binomial tree. You are given: (i)...

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Prices of a stock are modeled with a 1-period binomial tree. You are given: (i) The stock's initial price is 40 . (ii) The continuously compounded risk-free interest rate is 5%. (iii) The stock pays continuous dividends at a rate of 2%. (iv) The risk-neutral probability of an increase in stock price is 0.55. (v) In the binomial tree, u and d are selected so that their arithmetic average is 1 . A European call option on the stock has strike price 45 . Determine the option premium

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