There seems to be some inconsistency (or I am missing something) in how the downward factor d is calculated if the asset price is said to decrease by x%.
For example, in the Tutorial 4, question 3, the question states "In any unit of time the price of the stock either increases by 25% or decreases by 20%). In the memo, it then gives that d=0.8.
However, in the Q&A booklet, in section 3 (Binomial Model), question 13 states "Over each of the next two three-month periods it (the stock price) is expected to go up by 6% or down by 5% over each period." In the memo for that question, d is then given by d=1/1.05 which is not the same as d=0.95 as would be given in the method used in Tutorial 4.
What is the difference between these questions? Am I missing something in the wording?
Thanks a lot!