Problem 1 (Review). Consider a three-step binomial tree model with S(0) 100, u = 0.1, d= -0.05, and r = 0.04. (a) Find the risk-neutral probability P* and draw the binomial tree. (b) Find Ex[S(3)], the risk-neutral expectation of the stock price after 3 steps. (c) Find the conditional risk-neutral expectation Ex [S(3)|S(1) = 95). (d) Find P (S(3) > 100), the risk-neutral probability that S(3) > 100. (e) Find the expected one-step return E[K(1)] and compute the expected price E[S(3)]. Problem 1 (Review). Consider a three-step binomial tree model with S(0) 100, u = 0.1, d= -0.05, and r = 0.04. (a) Find the risk-neutral probability P* and draw the binomial tree. (b) Find Ex[S(3)], the risk-neutral expectation of the stock price after 3 steps. (c) Find the conditional risk-neutral expectation Ex [S(3)|S(1) = 95). (d) Find P (S(3) > 100), the risk-neutral probability that S(3) > 100. (e) Find the expected one-step return E[K(1)] and compute the expected price E[S(3)]