Consider two 2-year options with a strike price of $52 on a stock whose current price is $50. The exhibits below show the binomial trees used to price the two options. There are two steps of 1 year...

Calculate the risk neutral probability

Extracted text: Consider two 2-year options with a strike price of $52 on a stock whose current price is $50. The exhibits below show the binomial trees used to price the two options. There are two steps of 1 year and in each step the stock either moves up by 20% or moves down by 20%. The risk-free rate is 5%. Exhibit 3 72 60 50 1.4147 48 4.1923 4 40 9.4636 32 20 Exhibit 4 72 60 50 1.4147 48 5.0894 4 40 12.0 32 20