Use the following information to answer questions (12-13) Suppose that the probability that the train travelling...

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Use the following information to answer questions (12-13) Suppose that the probability that the train travelling from Holland, Michigan to Chicago, Illinois arrives on time is 0.80. For the questions that follow, consider a sample of twenty randomly selected train trips. Question 12: [Objective: Calculate the mean and standard deviation using the binomial model] Approximately how many trips would you expect to arrive on time out of twenty randomly selected trips, give or take how many trips? Round to the nearest whole trip. Question 13: [Objective: Calculate probabilities using the binomial model] What is the probability that exactly fifteen trips out of twenty will arrive in Chicago on time? Round to the nearest thousandth. 1. Let's build a binomial model for the stock of ABC Company. It has an expected return of 10% per year, an estimated return volatility of 20% per year, and a skewness of 0 per year. The risk-free rate is 6% per year. ABC stock has a current price of $100 and has declared dividends of $13 to be paid at the end of each year. a. Use the expected return, volatility, and skewness values to find the binomial up-state and down-state returns, and the probability of the up-state return. b. Construct a binomial model for the stock price of ABC with 2 annual periods. c. Find the value of a European call option expiring in 2 years with a strike price of $110 using the binomial model. d. Construct a tracking portfolio (at the current time t = 0) using ABC stock and the risk-free as- set to replicate the above call option based on the binomial model. e. Find the value of a European put option expiring in 2 years with a strike price of $110 using the binomial model. f. Find the value of an American call option expiring in 2 years with a strike price of $110 using the binomial model. g. Find the value of an American put option expiring in 2 years with a strike price of $110 using the binomial model. Use the following information to answer questions (12-13) Suppose that the probability that the train travelling from Holland, Michigan to Chicago, Illinois arrives on time is 0.80. For the questions that follow, consider a sample of twenty randomly selected train trips. Question 12: [Objective: Calculate the mean and standard deviation using the binomial model] Approximately how many trips would you expect to arrive on time out of twenty randomly selected trips, give or take how many trips? Round to the nearest whole trip. Question 13: [Objective: Calculate probabilities using the binomial model] What is the probability that exactly fifteen trips out of twenty will arrive in Chicago on time? Round to the nearest thousandth. 1. Let's build a binomial model for the stock of ABC Company. It has an expected return of 10% per year, an estimated return volatility of 20% per year, and a skewness of 0 per year. The risk-free rate is 6% per year. ABC stock has a current price of $100 and has declared dividends of $13 to be paid at the end of each year. a. Use the expected return, volatility, and skewness values to find the binomial up-state and down-state returns, and the probability of the up-state return. b. Construct a binomial model for the stock price of ABC with 2 annual periods. c. Find the value of a European call option expiring in 2 years with a strike price of $110 using the binomial model. d. Construct a tracking portfolio (at the current time t = 0) using ABC stock and the risk-free as- set to replicate the above call option based on the binomial model. e. Find the value of a European put option expiring in 2 years with a strike price of $110 using the binomial model. f. Find the value of an American call option expiring in 2 years with a strike price of $110 using the binomial model. g. Find the value of an American put option expiring in 2 years with a strike price of $110 using the binomial model.