Another one in mock 1, why does it use the risk neutral probability, but not use the correct up and down factor, meaning d = 1/u. This really annoys me as I learned this stuff at school and CFA choose to do something different, but it is a mixture of things…the answer really sucks. If u = 1.15, d should be 1/1.15 = 0.87…see their crap answer: Su= 52 x 1.15 = 59.8 Sd=52 x 0.8 = 41.6 P + = 0 P- = 45 - 41.6 = 3.4 Π= (1 + 0.06 – 0.8) / (1.15 – 0.8) = 0.7429 P =(πp+ + (1 - π) x p - ) / (1 + r) = $0.83
yeah that threw me off as well.