(Solution) - Suppose S 100 K 95 r 8 -(2025 Original AI-Free Solution)

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Suppose S = $100, K = $95, r = 8% (continuously compounded), t = 1, ? = 30%, and ? = 5%. Explicitly construct an eight-period binomial tree using the lognormal expressions for u and d:

Compute the prices of European and American calls and puts.