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Problem 8.2 Consider a stock with current value of $200, expected rate of annual return is 8% and corresponding standard deviation or volatility =15%. We

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Problem 8.2 Consider a stock with current value of $200, expected rate of annual return is 8% and corresponding standard deviation or volatility =15%. We wish to make a BLM based on weekly periods. (a) Calculate the values of p,u,d, assuming u=d1 (b) Calculate the values of u,d for p=21. 8.4. Continuous Model 33 (c) Build the lattice for (a),(b) for the first 5 weeks. (d) Calculate the probabilities P[S(5)=uid5i]fori=0,1,2,3,4,5 when p is the value found in part (a). Problem 8.2 Consider a stock with current value of $200, expected rate of annual return is 8% and corresponding standard deviation or volatility =15%. We wish to make a BLM based on weekly periods. (a) Calculate the values of p,u,d, assuming u=d1 (b) Calculate the values of u,d for p=21. 8.4. Continuous Model 33 (c) Build the lattice for (a),(b) for the first 5 weeks. (d) Calculate the probabilities P[S(5)=uid5i]fori=0,1,2,3,4,5 when p is the value found in part (a)

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