Question: We model the movement of stock prices using a Binomial tree. Each branch of the tree spans a time horizon of 5 months. The proportional

We model the movement of stock prices using a Binomial tree.

We model the movement of stock prices using a Binomial tree. Each branch of the tree spans a time horizon of 5 months. The proportional down movement on the tree (d) is 0.50. What is the volatility of the stock implied by d? If your answer is (say) 40%, enter 0.40. Answer: 0.3 X The correct answer is: 1.0738

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