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2. (10 marks: 2 marks each) Consider a 2-period Binomial Model for a stock given by: Time 0 Time 1 Time 2 uso uoso So

2. (10 marks: 2 marks each) Consider a 2-period Binomial Model for a stock given by: Time 0 Time 1 Time 2 uso uoso So douo So doso da so With So = $10, uo = 1.1, do = 0.9. Denote the price of the stock at time t by St. A risk free bond is worth Bt $10 for all t. a) (2 marks) Find the pricing probability that the stock price rises from $10.00 at time 0 to below $9.5 at time 2. 2. (10 marks: 2 marks each) Consider a 2-period Binomial Model for a stock given by: Time 0 Time 1 Time 2 uso uoso So douo So doso da so With So = $10, uo = 1.1, do = 0.9. Denote the price of the stock at time t by St. A risk free bond is worth Bt $10 for all t. a) (2 marks) Find the pricing probability that the stock price rises from $10.00 at time 0 to below $9.5 at time 2

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