Chapter 03 · Section 3.1

Binomial Pricing Question 5

Assume that the stock rises in the first period and falls during the two following periods. What will be the value of the stock at the end of the third period?

a) --99999/0
b) -0/115.82
c) -115.84/99999
• d) +115.83
  Yes. In a hypothesis with an upward multiplication factor of 1.3 and a downward multiplication factor of 0.9, the stock would take on a value of 115.83. This corresponds to: 110 x 1.3 x 0.9 x 0.9 = 115.83 Continue

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