Question: Consider a security with the stock prices S(1) = : 80 with probability 1/8 90 with probability 2/8 100 with probability 3/8 110 with probability

Consider a security with the stock prices

S(1) =

:

80 with probability 1/8

90 with probability 2/8

100 with probability 3/8

110 with probability 2/8

(a) What is the current price of the stock for which the expected return

would be 12%?

(b) What is the current price of the stock for which the standard deviation

would be 18%?

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