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The shares of XYZ Inc. are currently selling for $120 per share.The shares are expected to go up by 10 percent or down by 5 percentin each of the following two months (Month 1 and Month 2). XYZ Inc.is also expected to pay a dividend yield of 2 percent at the end ofMonth 1. The risk-free rate is 0.5 percent per month.a.      What is the value of an American call option on XYZ shares, with anexercise price of $125 and two months to expiration? Use thebinomial model to obtain the answer.
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