You have chosen a binomial tree to model the price dynamics of a stock. The probability of an up move is 0.70. If the stock moves up, it earns a 10% return. If the stockmoves down, it loses a 10% return. The current stock price is $80.

1:) Based on the binomial tree for the stock price' dynamic change. Compute the possible stock prices after two periods.

2:) Compute the corresponding probabilities for each possible price.

3:) Compute the expected value of the stock price at the end of two periods.

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To compute the possible stock prices after two periods using the binomial tree model we need to cons... View the full answer