1. We use the time value of money in finance to help us value assets used business or investments made. What are the factors used in computing the present value of cash flows?
2. Consider a 1-period binomial model with ud = 1 and r = 0. Assume that the initial stock price is S. Suppose that you know that the price of an at-the-money (i.e. with K = S) call option is C. Find u and the delta of this call option in terms of S and C.