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Build the binomial tree

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A non-dividend paying stock, currently priced at 140, is expected to go up by 10% or go down by 10% over a period. The risk free rate for one period is 4%. Build the binomial tree!

Su= ________

Sd= ________

The payoff of a call with X=$120 at expiration is:

Cu= ________

Cd= ________

The risk neutral probability is ________. The value of the call today is ________. To create,a hedge portfolio, you will need to buy ________ shares for 1000 calls ________(enter: written/purchased). The value of the hedge portfolio today is ________ and its value one period from now is ________. If the call was overpriced at $26, you could earn a return of ________% (round to two decimals).

Reference no: EM132466814

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