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A Binomial Tree Setting Has an Up-Move Of u>1u > 1

Question 19

Multiple Choice

A binomial tree setting has an up-move of u>1u > 1 (with probability p=0.75p = 0.75 ) and a down move of d<1d < 1 (with probability 1p=0.251 - p = 0.25 ) ,with ud=1u d = 1 .The risk-free interest rate per time step is zero,so a dollar invested at the beginning of the period returns a dollar at the end of the period. In this setting,the risk-neutral probability of an up-move


A) Is >12> \frac { 1 } { 2 }
)
B) Is <12< \frac { 1 } { 2 }
)
C) Is equal to 12\frac { 1 } { 2 }
)
D) Is equal to pp
)

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