Consider a nondividend-paying stock with a current price of $45, an in- stantaneous annual expected return...

 

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Consider a nondividend-paying stock with a current price of $45, an in- stantaneous annual expected return of 8%, and annual volatility of 15%. As- sume an 80-period CRR tree. a) Can the stock price be at the same value 3 months from now? If so, how many times would the price have to increase and decrease for this to hap- pen? b) What is the probability that the stock price will be at the same value 3 months? c) What is the probability that in 3 months the stock price is greater than its current price? Consider a nondividend-paying stock with a current price of $45, an in- stantaneous annual expected return of 8%, and annual volatility of 15%. As- sume an 80-period CRR tree. a) Can the stock price be at the same value 3 months from now? If so, how many times would the price have to increase and decrease for this to hap- pen? b) What is the probability that the stock price will be at the same value 3 months? c) What is the probability that in 3 months the stock price is greater than its current price?

Answer rating: 100% (QA)

To perform the calculations well use the CoxRossRubinstein CRR model to construct the binomial tree ... View the full answer