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PRMIA Exam 8002 Topic 2 Question 48 Discussion

Actual exam question for PRMIA's Mathematical Foundations of Risk Measurement :II exam
Question #: 48
Topic #: 2
[All Mathematical Foundations of Risk Measurement :II Questions]

Consider a binomial lattice where a security price S moves up by a factor u with probability p, or down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?

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Suggested Answer: D


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