A Binomial Tree Setting Has an Up-Move Of $u > 1$

question 13

Multiple Choice

A binomial tree setting has an up-move of $u > 1$ (with probability $p = 0.75$ ) and a down move of $d < 1$ (with probability $1 - p = 0.25$ ) ,with $u - 1 = 1 - d$ .The risk-free interest rate per time step is zero,so a dollar invested at the beginning of the period returns $R = \$ 1$ at the end of the period.The risk-neutral probability of an up-move in this setting

• A)Is \(> \frac { 1 } { 2 }\)
• )
• B)Is \(< \frac { 1 } { 2 }\)
• )
• C)Is equal to \(\frac { 1 } { 2 }\)
• )
• D)Is equal to \(p\)
• )

Describe the process of security issuance and the distinction between primary and secondary markets.

Explain insider trading and its implications in the financial markets.

Understand the different types of financial instruments and securities, their risk levels, and insurance mechanisms.

Understand the factors influencing dividend policy decisions.

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