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PRMIA Exam 8007 Topic 1 Question 79 Discussion

Actual exam question for PRMIA's 8007 exam

Question #: 79
Topic #: 1

[All 8007 Questions]

In a binomial tree lattice, at each step the underlying price can move up by a factor of u = 1.1 or down by a factor of . The continuously compounded risk free interest rate over each time step is 1% and there are no dividends paid on the underlying. The risk neutral probability for an up move is:

A0.5290

B0.5292

C0.5286

D0.5288

Show Suggested Answer

Suggested Answer: D

by Alpha at Aug 08, 2024, 04:01 PM

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Jacki

4 months ago

I got 0.5288 as the risk neutral probability for an up move.

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Maira

4 months ago

Hmm, maybe we should double check our calculations.

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Patti

5 months ago

Whoa, hold up. Isn't the risk-neutral probability supposed to be between 0 and 1? I better double-check my work...

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Roslyn

5 months ago

I disagree, I calculated it to be 0.5292.

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Maira

5 months ago

I think the risk neutral probability for an up move is 0.5290.

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Hubert

5 months ago

Haha, these finance questions are like a whole other language sometimes. I'm just going to guess and hope for the best!

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Sarina

4 months ago

B) 0.5292

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Gary

4 months ago

A) 0.5290

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Zoila

5 months ago

I'm not sure, but I think I will go with A) 0.5290 based on what others are saying.

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Louann

5 months ago

This is a classic binomial tree problem. The answer has to be D - 0.5288. No doubt about it.

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Ryan

5 months ago

Option A looks good to me. The risk-free rate is 1%, so the probability should be around 0.53, right?

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Evangelina

5 months ago

Okay, let's see... the up factor is 1.1, the down factor is... wait, what was it again? I need to review my notes.

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Brendan

4 months ago

D) 0.5288

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Marge

4 months ago

C) 0.5286

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Micheline

4 months ago

B) 0.5292

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Lamar

4 months ago

A) 0.5290

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Hester

5 months ago

Hmm, this is a tricky one. I think I'll go with option B - it just looks more accurate to me.

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Edwin

4 months ago

I agree with you, option B seems like the most accurate choice.

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Catina

4 months ago

I'm not sure, but I think option C might be correct.

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Bok

4 months ago

I'm leaning towards option A, actually.

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Karan

5 months ago

I think option B is the best choice.

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Brittney

5 months ago

I calculated it as well and got A) 0.5290 too.

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Thomasena

5 months ago

I agree with Paul, the risk neutral probability for an up move is 0.5290.

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Paul

5 months ago

I think the answer is A) 0.5290.

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