In a Cox-Ross-Rubinstein Binomial Tree, the Formula for the Proportional $u = e ^ { r \Delta t }$

question 2

Multiple Choice

In a Cox-Ross-Rubinstein binomial tree, the formula for the proportional up-movement, u, is: choose one)

• A) \(u = e ^ { r \Delta t }\)
• B) \(\mathcal { U } = e ^ { r - \sqrt { \Delta t } }\)
• C) \(u = e ^ { \sigma \Delta t }\)
• D) \(\mathcal { U } = e ^ { \sigma \sqrt { \Delta t } }\)

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Definitions:

Variable Costs

Expenses that fluctuate in direct proportion to production levels or output, including labor and materials.

Short-run Supply Curve

A graphical representation of the quantity of goods a firm is willing and able to supply to the market at different prices, over a short period where at least one input is fixed.

Marginal Cost

The financial commitment needed for the creation of an additional unit of a product or service.

Fixed Cost

Expenses that do not vary with the level of production or sales, such as rent, salaries, or insurance costs.