Question: Problem 4 (6 pts) In a simple market one-period binomial tree model, we know that the simple compounding annual effective interest rate is given by

Problem 4 (6 pts) In a simple market one-period binomial tree

Problem 4 (6 pts) In a simple market one-period binomial tree model, we know that the simple compounding annual effective interest rate is given by i=8%. The stock price satisfies S(0)=65 and S(1)={80,40,withprobabilitp,withprobabilit1p, where 0

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2. The model is credible to the trainees.

6. Have the trainees do the entire task and praise them for correct reproduction.

3. Explain the key points or behaviors. (Write out the key points for the trainees, if possible.)