Calculate probability that stock will increase its value

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Future prices of a stock are modeled with a 1-period binomial tree, the period being one year. You are given: (i) The continuously compounded risk free interest rate is 5%. (ii) The stock pays dividends proportional to its price at a continuous rate of 2%. (iii) The continuously compounded expected annual return for the stock is 15%. (iv) sigma = 0.3. (v) The binomial tree is constructed using forward prices. Calculate the probability that the stock will increase its value:

Reference no: EM131128732

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