Question 5: Binomial trees. NanoTech (NT), a dominant PC software company, intends to make a tender offer for Ratiocyn, a rapidly growing developer...

5.We determined in class that the true probability of an up or down move is “not important” for pricing options. How do you reconcile this with your answer in part d)?

SusdsRfud 1) 4360301%1.400.70 continuously compunded = e^0.01 = 1.0101 E = 50p= R-dU-d q = 1-p = 0.44780.5522 cu = 10cd = 0Value of call option i.e C0 = $ 4.43 2) Risk adjusted...