Volatility in year 1 of a BDT tree
Hi everyone. I need some advice here. Please see sample questions #29 and #30. Both questions reference volatility in year 1 but they mean two different things depending on the question you're reading. My question is, how the hell am I supposed to know what the hell they are talking about if they say "volatility in year 1" on the exam? Does anyone know if they are extra anal about making the distinction on the exam? Right now I'm thinking if they give me volatility of year x then I'll need to assume they are giving me the sigma(x) parameter in the tree and if they ask me to compute it then they are asking for the other version.