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What is the risk neutral probability

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Reference no: EM132754573

Question - Assume a stock is currently priced at $50.00 and follows a binomial process with u=1.15, d=0.87. The risk free rate is 5% (per period).

Required -

a. What is the risk neutral probability (p) that the stock will move up in any period?

b. Use the BOPM to price a European call with a strike price of $55.00 and 2 periods to maturity (i.e. find C(50,2,55)).

Reference no: EM132754573

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