Suppose Carol's Stock Price Is Currently $20

question 18

Multiple Choice

Suppose Carol's stock price is currently $20. In each six-month period it will either fall by 50 percent or rise by 100 percent. What is the current value of a one-year call option with an exercise price of $15? The six-month risk-free interest rate is 5 percent per six-month period. [Use the two-stage binomial method.]

• A)$8.73
• B)$10.03
• C)$16.88
• D)$13.33

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Definitions:

Voluntary Responses

Actions that are undertaken intentionally and with awareness, as opposed to automatic or reflexive reactions.

Operant Conditioning

A method of learning that employs rewards and punishments for behavior, emphasizing the idea that behaviors are influenced by their consequences.

Controlled

In psychology, referring to cognitive processes that require conscious, deliberate thought or processes that are under an individual's deliberate control.

Reinforcement

In behavioral psychology, a process by which a behavior becomes more likely to occur due to the consequence that follows it, can be positive or negative.