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CM2B Sept 2021 Q4

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nreid23

Member
To calculate the state price deflator, the value of P is needed. In the solution it's just hardcoded as 0.5 , how have they got this?
 
I think as it is not given in the question you just assume it is 0.5. So unless it explicitly states x% is the probability of an up step then it's safe to assume it is 0.5
 
The question did not provide a value of p. You were meant to choose your own value of p, and then apply that value. If you used a different value with the correct working, you would still have received full marks (and in this question, the option value is in fact independent of the value of p).
 
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