Answered step by step
Verified Expert Solution
Question
1 Approved Answer
1. Find how much a stock would move given a risk-free rate of 1.99 over a period of 0.47 part of a year (this is
1. Find how much a stock would move given a risk-free rate of 1.99 over a period of 0.47 part of a year (this is the value of 'a' or the risk-free movement in binomial pricing).
2. Find the probability of an up movement in a binomial model (proby(u)=(a-d)/(u-d). Given that the time period between nodes is 0.56 part of a year, the stock has a standard deviation of 24.5%, and the risk-free rate is 0.65%.
3. Find the probability of a down movement in a binomial model give the probability of an up movement is 67.22%.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started