The mean rate of return on a stock is estimated at 20%  while the volatility

is 40%:  The risk free interest rate is 5%:

 (a) What is the mean for the log price relative?

(b) Construct the .nal stock prices for a 10  period one year tree.

(c) Construct the statistical probabilities for these stock prices


(d) Construct the associated risk neutral probabilities.

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