Question: Right now, the risk free rate is 4.5% and the stock price for a risky tech startup is $325, with a volatility of 32%. Using the binomial tree model, for a one month time step:
a) what is the percentage up movement?
b) what is the percentage down movement?
c) what is the probability of an up movement in a risk neutral world?
d) what is the probablity of a down movement in a risk neutral world?
e) use a five-step tree to value a five month European put option with a strike price of $320
d) use a five-step tree to value a five month American put option with a strike price of $320