# Binomial model, calculate the nodes

In the first nodal period (so we need two different interest rates) the lower bound is 12% with a standard deviation of 10%. What’s the percentage for the upper rate?

=12%*EXP(2*10%) = 0.146568331

I’m sure I’m wrong because I’ve never seen anything like this before, but I’ll guess 14.67%, I totally just jerry rigged a formula and cranked out a bogus #.

oh well heeeey, that’s pretty cool.

Okay Swan now I want to see your formula

this won’t be tested right?

Ok, and I totally made this up on the spot, so it could be wrong, but what I did was assumed the movement at each node was the std. dev., so I took 12/.9 to get back to the starting point, then I multiplied that number (13.3333) by 1.1 to arrive at the upper node.

WTF is jerry rigged?

i dunno, a phrase my landscaping partner used to always use for just winging it. I believe it involves Jerry’s (Germans) and rigging (building). I’m googling it now just to check.

mcpass Wrote: ------------------------------------------------------- > In the first nodal period (so we need two > different interest rates) the lower bound is 12% > with a standard deviation of 10%. > > What’s the percentage for the upper rate? you don’t need to know that for the exam.

I’ve always thought it was jury rigged.

Haha, I just found out that jerry rigged is a confusion of the terms jury-rigged and jerry-build meaning makeshift and poor craftsmanship respectively.

Sponge_Bob_CFA Wrote: ------------------------------------------------------- > I’ve always thought it was jury rigged. It is…kind of. That’s what it came from initially…according to wikipedia that is.

See, you learned something today.

I just did this in Schweser Pro today, and my thoughts exactly - what is this jibberish