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(10pts) Assume S(0) = 100. Construct a three-period binomial tree model with T = 1, u = 0.1 and d= -0.1. Suppose the probability that
(10pts) Assume S(0) = 100. Construct a three-period binomial tree model with T = 1, u = 0.1 and d= -0.1. Suppose the probability that the stock price moves up in each step is p = 0.6. Answer the following questions: (a) What is the expected stock price at T = 3? (b) What is the expected stock price at T = 3 given the stock price at time T = 2 followed two upward moves? (c) Find the probability that the stock price at the end of one year is higher than S(0)
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