Let S = $40, K = $45, r = 7% (continuously compounded), d = 5%, s = 20%, and T = 2. What are the appropriate values of u and d to build a 2-period binomial stock price tree? (Use the formulas from the main part of the chapter and lecture notes, not the alternative formulas in the appendix.)

a.

u = 1.2461; d = 0.8353

b.

u = 1.5377; d = 0.5989

c.

u = 1.0617; d = 0.6473

d.

u = 1.1775; d = 0.7710

e.

u = 1.0305; d = 0.6290