Answer:
The value of the so-called up factor is
[tex]u = 1.1618[/tex]
Step-by-step explanation:
From the question we are told that
The number of period is n = 4
The volatility of the exchange rate is [tex]v = 0.1[/tex]
The continuously compounded risk-free interest rate for the yen is r = 0.05
The continuously compounded risk-free interest rate for the USD is R = 0.02
Generally the so-called up factor u is mathematically represented as
[tex]u = e^{v + r}[/tex]
=> [tex]u = e^{0.1 + 0.05}[/tex]
=> [tex]u = e^{0.15}[/tex]
=> [tex]u = 1.1618[/tex]
