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

question 11

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 $u d = 1$ . The risk-free interest rate per time step is zero, so a dollar invested at the beginning of the period returns a dollar at the end of the period. In this setting, the risk-neutral probability of an up-move

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

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Definitions:

Unconscious Desires

Wishes or wants that reside within the unconscious mind, influencing behavior without one's awareness.

Superego

In psychoanalytic theory, the part of a person's mind that acts as a self-critical conscience, reflecting social standards learned from parents and teachers.

Balanced

Having elements in the correct proportions or elements that are equally distributed, leading to stability or harmony.

Generativity

A stage of adult development characterized by the desire to create or nurture things that will outlast the individual, often by guiding the next generation.