Use the Information for the Question(s)below

question 11

Multiple Choice

Use the information for the question(s) below.
The current price of KD Industries stock is $20.In the next year the stock price will either go up by 20% or go down by 20%.KD pays no dividends.The one-year risk-free rate is 5% and will remain constant.
-The risk-neutral probability of a down state for KD Industries is closest to:

• A)37.5%.
• B)62.5%.
• C)40.0%.
• D)60.0%.

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Definitions:

Trade

The swapping of goods, services, or both among two or more entities.

Opportunity Cost

The loss incurred from potential opportunities when one choice is made over others.

Absolute Advantage

A condition where a country, entity, or individual can produce a good or service more efficiently than competitors using the same amount of resources.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost compared to others.