We consider a one-step binomial tree in which the parameters are u = 1.2, d = 0.8, r = 0.12, T= 0.25, fu = 3, fa = 0. Evaluate the followings: (1) Calculate the probability p of an up movement in a risk-neutral world. (2) Compute the current price f.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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We consider a one-step binomial tree in which the parameters are
u = 1.2,
d = 0.8,
r = 0.12, T = 0.25, fu = 3, fa = 0.
Evaluate the followings:
(1) Calculate the probability p of an up movement in a risk-neutral world.
(2) Compute the current price f.
Transcribed Image Text:We consider a one-step binomial tree in which the parameters are u = 1.2, d = 0.8, r = 0.12, T = 0.25, fu = 3, fa = 0. Evaluate the followings: (1) Calculate the probability p of an up movement in a risk-neutral world. (2) Compute the current price f.
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