How can we do both of these questions.
Ans 25= 0.625
Ans. 26= option A
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25. Let the probability of up move be p. So the probability of down move will be (1-p). Average price is 102.
So,( p x 105)+ (1-p)(97) = 102
Solve for p. P= 0.625
26. Since they are talking about the terminal nodes which means the last nodes of the binomial tree, we will have to see only last nodes. The only last node with positive payoff will be 219. So answer is one.
Can you more elaborate 26
26. Only one node has a positive payoff i.e. value greater than 200. All the other nodes will have a value less than 200.