Question
Assume that if WMT launches a new e-trading platform, its price will go up to $236. Else, WMT price will go down to $42. You
Assume that if WMT launches a new e-trading platform, its price will go up to $236. Else, WMT price will go down to $42. You are aware that WMT shares are being traded at $161. You also know that the risk-free rate is 5% (let's just assume it is).
You are presenting your recommendations about WMT to the board of your firm. They are interested in your suggested strategy and ideas, but they want to know what is the probability that WMT will go up?
***Please round your answer to the nearest three decimals (i.e. 0.521)
Hint:
p = ((1+risk-free) - d) / (u - d)
u = Stock (Up) / Stock (Today)
d = Stock (Down) / Stock (Today)
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