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Math Help - Risk Neutral valuation

  1. #1
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    Risk Neutral valuation

    Hi everyone,

    Can someone help me solve this equation?

    0.07 = (ProbabilityRise)(.25) + (1 – ProbabilityRise)(–.20)
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  2. #2
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    Quote Originally Posted by Lawstudent View Post
    Hi everyone,

    Can someone help me solve this equation?

    0.07 = (ProbabilityRise)(.25) + (1 – ProbabilityRise)(–.20)
    0.07=P(0.25)+(1-P)(-0.20)

    0.07=0.25P-0.20+0.20P

    0.07+0.20=0.25P+0.20P

    0.27=0.45P

    P=\frac{0.27}{0.45}=0.6

    Probability Rise = 0.60
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  3. #3
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    Quote Originally Posted by Lawstudent View Post
    Hi everyone,

    Can someone help me solve this equation?

    0.07 = (ProbabilityRise)(.25) + (1 – ProbabilityRise)(–.20)
    This worries me, LawStudent. Why are you in this class without basic algebra skills? Are you SURE you're in the right class? It's not likely to get any easier.
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