Find growth of a stock in an up movement in a binomial tree, if the stock has a standard deviation of 35

Finance Aug 08, 2020

Find growth of a stock in an up movement in a binomial tree, if the stock has a standard deviation of 35.9% and the period to the next node is 0.5 part of a year.

Expert Solution

u = exp (s*t^0.5)

where s is the annual standard deviation and t is the time in years

u = exp(0.359*0.5^0.5) = 1.28898

So, the upside growth rate is 0.28898 or 28.898% or 28.90%

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