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= Problem 2. (50 pts) a) Consider the one-period trinomial model where the price of the bond is Bo 1, B1 = 1+r and the

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= Problem 2. (50 pts) a) Consider the one-period trinomial model where the price of the bond is Bo 1, B1 = 1+r and the price of the stock is described by So = 1, Si = u with probability Pu, Si = m with probability Pm, and S1 = d with probability pd with pu + Pm + pd = 1 and Pu > 0, Pm > 0, and Pd > 0. We assume that u 0, Pm > 0, and Pd > 0. We assume that u

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