Use the Information for the Question(s)below

question 31

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 price of a one-year put option on KD stock with a strike price of $20 is closest to:

• A)$2.00.
• B)$1.45.
• C)$2.40.
• D)$2.15.

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Definitions:

Interdependent Firms

Companies whose outcomes or performances are mutually influenced by each other's decisions and actions in the market.

Oligopoly

A market structure dominated by a small number of large firms, leading to limited competition and potentially higher prices and profits.

Decision Making

The cognitive process leading to the selection of a course of action among multiple alternatives, fundamental in business and personal contexts.

Interdependent

A relationship between entities or individuals where each is mutually reliant on the other, making their outcomes closely connected.