A nine-month American call option on RAYCO stock has an exercise price of $25. The current RAYCO stock price is $25 and the stock price is expected to either rise 15% or fall 12% every three months. RAYCO is expected to pay a dividend of $1.00 in eight months' time. The risk-free rate is 3% p.a. (continuously compounded) for all maturities. The option is to be priced using a thrcx: period binornial model.
Question-
(a) Calculate the adjusted stock price at time zero.
(b) Draw the stock price tree diagram for the adjusted stock price and show teh expiration date payoffs on the call option.