I bought a stock costing me Rs S(0). It is known that at the end of every year, the stock price will either rise by a factor of 'u' or fall by a factor of 'd'.
Under these assumptions, there are only 4 stock prices possible after 3 years: 24, x, 32 and y.
What are x and y?
x= 18 and y=13.5 ?
ReplyDeleteyes, thats correct.
ReplyDeleteuuu ddd udd ddu are the four combos hence only way to go from a larger to smaller price is to multiply by d/u or its square or cube, in this case its 0.75 (3/4) which is not a perfect sq or cube of a proper fraction so its d/u and hence we sq and cube it to get the values is the explanation correct?
ReplyDelete