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What is the percentage up movement

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Reference no: EM13263751

The current price of a non-dividend-paying biotech stock is $140 with a volatility of 25%. The risk-free rate is 4%. For a three-month time step:

  1. What is the percentage up movement?
  2. What is the percentage down movement?
  3. What is the probability of an up movement in a risk-neutral world?
  4. What is the probability of a down movement in a risk-neutral world?

Use a two-step tree to value a six-month European call option and a six-month European put option. In both cases the strike price is $150.

 

Reference no: EM13263751

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