14 The undiscounted risk neutral expected stock price equals the forward price We will verify this using the binomial tree in Figure 4 a Using S $100, r 0 08, and 0, what are the 4 month, 8 month, and 1 year forward prices b Verify your answers in (a) by computing the risk neutral expected stock pr...

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14. The undiscounted risk-neutral expected stock price equals the forward price.We will verify this using the binomial

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14. The undiscounted risk-neutral expected stock price equals the forward price.We will verify this using the binomial tree in Figure 4.

a. Using S = $100, r = 0.08, and δ = 0, what are the 4-month, 8-month, and 1-year forward prices?

b. Verify your answers in

(a) by computing the risk-neutral expected stock price in the first, second, and third binomial period. Use equation (12) to determine the probability of reaching each node.

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Derivatives Markets Pearson New International Edition

ISBN: 978-1292021256

3rd Edition

Authors: Robert L. Mcdonald

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14. The undiscounted risk-neutral expected stock price equals the forward price.We will verify this using the binomial

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Derivatives Markets Pearson New International Edition

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