Let S = $70, K = $75, r = 8% (continuously compounded), d = 5%,...
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Let S = $70, K = $75, r = 8% (continuously compounded), d = 5%, 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 = 1.5398; d = 0.8648 | |
| b. | u = 1.4623; d = 0.7261 | |
| c. | u = 1.5837; d = 0.8547 | |
| d. | u = 1.7562; d = 0.7893 | |
| e. | u = 1.8322; d = 0.5403 |
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