Question
Consider a non-dividend-paying stock. We model this stock with a 20-period binomial tree with u = 3=2; d = 2=3 and pu = 0:51; pd
Consider a non-dividend-paying stock. We model this stock with a 20-period binomial tree with u =
3=2; d = 2=3 and pu = 0:51; pd = 1 pu.
(a) Can the stock price be at the same value after 20 periods from now, i.e., S0 = S20? If your answer
is \yes", how many times would the price have to increase and decrease for this to happen?
(b) What is the probability that S0 = S20?
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Focus On Personal Finance
Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes, Melissa Hart
7th Edition
1265521972, 978-1265521974
