Consider a binomial tree with one future period (T=0,1) in which the price can go up to 27 or decrease to 16. The price of the asset at T=0 is 20, and there is an equal chance that it goes up or down at T=1. The investor starts with an initial wealth of 1,000. The risk-free asset yields a return of zero percent.

What is the highest expected wealth that an investor can achieve with the constraint that the wealth cannot be negative in the down state?

Select one:

a. 1000

b. 1000/2

c. 2750

d. 2750/2

e. None of the above

The answer is D, but i want to know how how youre meant to figure this question out. The methodology used to solve it. Can someone explain this as best as you can. Thanks.