How did you get Fu = 11 & Fd = 0?? **Can you explain** **Show Calculation** PROBLEM 1: Use the "up-down" binomial pricing method to derive call option values for thefollowing conditions:A. S = 30, K = 34, r = 3%, t = .25, uexpiration. Assume this is a European option. Show your work.S=K=r=t=u=d =e^rt =fu =fd =T=(1-π) =f=30343%0.251.50.51.0075281101.5, d0.5075280.4924725.541096S= 30f= ?-.5 and there is only one step or "jump" beforeS= 45S= 15fu= 11fd = 0

A call option refers to a derivative instrument that provides the choice of buying the associated…

Answered: PROBLEM 1: Use the "up-down" binomial…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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PROBLEM 1: Use the "up-down" binomial pricing method to derive call option values for the following conditions: A. S = 30, K = 34, r = 3%, t = .25, u = 1.5, d = .5 and there is only one step or "jump" before expiration. Assume this is a European option. Show your work.