Consider a stock that provides an expected return of 15% per annum and has a...
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Consider a stock that provides an expected return of 15% per annum and has a volatility of 40% per annum. Suppose that a time interval of .01 year is used for the binomial model, Calculate u, d, and p. Show that they give correct values for the expected return and the variance of return during the time interval. Suppose the stock price starts at $50. What are the possible stock prices at the end of .03 year? What is the probability of each one occurring?
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