1. Use a two-period Cox-Ross-Rubinstein binomial tree to price a European call option with the following terms: strike price is $20; expiration is in 8 months; the current price of the stock is $19; the stock’s volatility is 10%; continuous dividend rate is 2%; risk-free interest rate is 6%.
2. You bought a new car with financing of $50,000. They allow you to pay in monthly installments of $1,528 for three years. What is the effective annual rate (EAR) that they are charging you?
3. A piece of newly purchased industrial equipment costs $954,318.00 and is classified as a seven-year property under MACRS. What is the book value of this piece of equipment at the end of year 3?