Question
3) Let S = $85, K = $75, r = 7% (continuously compounded), d = 2%, s = 35%, and T = 2. What are
3) Let S = $85, K = $75, r = 7% (continuously compounded), d = 2%, s = 35%, and T = 2. What are the appropriate values of u and d to build a 2-period binomial stock price tree? (Use the formulas from the main part of the chapter and lecture notes, not the alternative formulas in the appendix.)
Use: Table 1: Table of the Standard Normal Cumulative Distribution Function ?(z): https://math.ucalgary.ca/files/math/normal_cdf.pdf
a. u = 1.5694; d = 0.9253
b. u = 1.3232; d = 0.5815
c. u = 1.4918; d = 0.7408
d. u = 1.2129; d = 0.6097
e. u = 1.6947; d = 0.7867
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