Question: Let S = $40, K = $40, r = 8% (continuously compounding), = 30%, = 0, T = 0.5 year and n = 2 (n

Let S = $40, K = $40, r = 8% (continuously compounding), = 30%, = 0, T = 0.5 year and n = 2 (n refers to the number of binomial periods).

Also given u = 1.1853 and d = 0.8781.

Construct the binomial tree for the stock.

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