Use the Information for the Question(s)below

question 26

Essay

Use the information for the question(s)below.
The current price of Kinston Corporation stock is $10.In each of the next two years,this stock price can either go up by $3.00 or go down by $2.00.Kinston stock pays no dividends.The one-year risk-free interest rate is 5% and will remain constant.
-Using risk-neutral probabilities,calculate the price of a two-year call option on Kinston stock with a strike price of $9.

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Definitions:

Contra Account

An account used in accounting to record reductions of related accounts, which has a balance opposite to the normal balance of the related account.

Unearned Rental Revenue

Income received from renters but not yet earned because the rental period has not occurred.

Bad Debts Expense

The cost recorded by businesses to cover accounts receivable that are not expected to be collected.

Rental Income

Rental income is income received from leasing out property or equipment, forming a source of earnings for businesses and individuals alike.