Question: 2. Consider a three-period binomial model in Figure 2 with S0=4,u=2, and d=1/2. The risk-free rate is 10% at each period. The payoff of the

2. Consider a three-period binomial model in Figure 2 with S0=4,u=2,

2. Consider a three-period binomial model in Figure 2 with S0=4,u=2, and d=1/2. The risk-free rate is 10% at each period. The payoff of the focus asset is S32. (a) What is the no-arbitrage price of V1(H) ? (b) How many shares of stock should one hold in the replicated portfolio X1(H)

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