# backward valuation

when can we use 50% as probability of moving up or down? when we have to calculate the probability of moving up as (1+r-d)/(u-d)?

they will let you know on the question. If it says something has an “upside potential”/“downside potential” then you use probability of moving up. Otherwise assume 50/50 probability

In calculating bond , you will have take half of the discounted amount

Interest rates trees always use a 50/50 probability of and up or down move. For stock price trees the risk neutral probabilities are different. To calculate it is: 1+RFR-D/(U-D)

exactly as mwvt9 explained above. For stock price trees, the q will say something like ‘the stock may move up 15% or down 25%.’ So your U value would be 1.15 and your D value would be .75

ilvino…West Coast?

Sunny Southwest Florida.

I knew you were near a beach.

if you hold a seashell up to your ear, you can hear me studying for Level II.

mwvt9 Wrote: ------------------------------------------------------- > I knew you were near a beach. ^ by the way he posted???

Yes.

We are training to be analysts. You have to be able to pick up on stuff N.Van. I can’t believe you didn’t know he was near a beach from his posts.