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In the Event Tree Used in the Binomial Approach to Option

Question 21

Multiple Choice

In the event tree used in the binomial approach to option valuation,at each node the value either increases or decreases by the proportion u or d,respectively.If the annualized volatility of the underlying asset's value is 10 percent per year and the horizon is six months,what are the up-movement u and down-movement d values?


A) 1.0488 and 0.9534
B) 1.0513 and 0.9511
C) 1.0733 and 0.9317
D) 1.2505 and 0.8000

Correct Answer:

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