Question: Let S = $85, K = $95, r = 6% (continuously compounded), d = 5%, s = 35%, T = 2, and n = 3.

Let S = $85, K = $95, r = 6% (continuously compounded), d = 5%, s = 35%, T = 2, and n = 3. In this situation, the appropriate values of u and d are 1.31317 and 0.74148, respectively. What is the value of p*, the risk-neutral probability of an upward movement in the stock price at any node of the binomial tree?

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