Question: Let S = $50, K = $60, r = 7% (continuously compounded), d = 4%, s = 35%, and T = 2. What are the

Let S = $50, K = $60, r = 7% (continuously compounded), d = 4%, s = 35%, and T = 2. What are the appropriate values of u and d to build a 5-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.)?

ANSWER CHOICES: A. u = 1.4813; d = 0.6278 B. u = 1.0924; d = 0.8882 C. u = 1.2628; d = 0.8111 D. u = 1.1719; d = 0.8606 E. u = 1.0772; d = 0.6862

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