Repeat the previous problem for n 50 What is the risk neutral probability that S1 $80 S1 $120 We sawin Section 10 1 that the undiscounted risk neutral expected stock price equals the forward price We will verify this using the binomial tree in Figure 11 4 a Using S $100, r 0 08, and 0, what are the 4 month, 8 month, and 1 year forward prices b Verify your answers in (a) by computing the risk neutral expected stock price in the first, second, and third binomial period Use equation (11 12) to determine the probability of reaching each node

Question: Repeat the previous problem for n = 50. What is the risk-neutral probability that S1 < $80? S1> $120? We sawin Section 10.1 that the

Repeat the previous problem for n = 50. What is the risk-neutral probability that S1< $80? S1> $120? We sawin Section 10.1 that the undiscounted risk-neutral expected stock price equals the forward price. We will verify this using the binomial tree in Figure 11.4.
a. Using S = $100, r = 0.08, and δ = 0, what are the 4-month, 8-month, and 1-year forward prices?
b. Verify your answers in (a) by computing the risk-neutral expected stock price in the first, second, and third binomial period. Use equation (11.12) to determine the probability of reaching each node.

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