Let S = $55, K = $65, r = 4% (continuously compounded), d = 2%,...
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Let S = $55, K = $65, r = 4% (continuously compounded), d = 2%, s = 35%, and T = 2. What are the appropriate values of u and d to build a 2-period binomial stock price tree? (Use the formulas from the main part of the chapter and lecture notes, not the alternative formulas in the appendix.)
| a. | u = 1.4477; d = 0.7189 | |
| b. | u = 1.3203; d = 0.6283 | |
| c. | u = 1.6055; d = 0.5306 | |
| d. | u = 1.8328; d = 0.9102 | |
| e. | u = 1.2856; d = 0.5766 |
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