Nov 13 Mock Test IV: Afternoon Session Q5

kspoon
Posts: 6
Joined: Wed Apr 04, 2012 12:33 am

Nov 13 Mock Test IV: Afternoon Session Q5

Postby kspoon » Fri May 18, 2012 8:08 am

Hi,

For Q5 of Mock Test IV Afternoon Session, the solution shows that the U factor is 1.0732. How do you get that? I tried to review the slides on binomial tree, wasn't able to find anything.

Thanks in advance.

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suresh.wadhwani2009
Finance Junkie
Posts: 99
Joined: Sat Apr 07, 2012 10:24 am

Re: Nov 13 Mock Test IV: Afternoon Session Q5

Postby suresh.wadhwani2009 » Fri May 18, 2012 9:56 am

U denotes up movement which is calculated by below formula:

U= exp(sigma*sq root of T)

so in this qn: U= exp(0.1*sq root of 0.5)
U=exp(0.1*0.707)
U=1.0732

Hope it helps!


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