Use the Information for the Question(s)below

question 21

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.
-Using the binomial pricing model,the calculated beta of a one-year put option on KD stock with a strike price of $20 is closest to:

• A)-7.7.
• B)2.4.
• C)4.6.
• D)-1.8.

Recognize the role of terminal values and terminal cash flows in project evaluation.

Assess project proposals considering estimating inaccuracies and subjective benefits.

Understand the importance of considering risk in the capital budgeting process.

Grasp the concept of the cost of capital as the appropriate discount rate for evaluating projects.

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Definitions:

Nondiscriminating Pure Monopolist

A market player who is the sole seller of a product or service but charges a single price to all customers without price discrimination.

Average Revenue

The amount of revenue generated per unit of output sold, calculated by dividing total revenue by the quantity of units sold.