7.9. Assume that futures prices for Hewlett-Packard (HP) can appreciate by 15 percent or depreciate by 10

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7.9. Assume that futures prices for Hewlett-Packard

(HP) can appreciate by 15 percent or depreciate by 10 percent and that the risk-free rate is 10 percent over the next period. Price a derivative security on HP that has payoffs of $25 in the up state and 2$5 in the down state in the next period, where the actual probability of the up state occurring is 75 percent.

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