In order to build the binomial tree, you need to estimate the volatility for Medco. Using the stock prices provided in the excel file, follow these steps:

a.Compute daily return for each trading day using adjusted prices as follows:

Return = (P1-P0) / P0

b.Find the standard deviation of daily returns over the past year.

c.To annualize the standard deviation, take the standard deviation of daily return and multiply by the square root of 260 (the approximate number of trading days in one year).