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:

Bonds

Fixed income investment products that represent loans made by an investor to a borrower, typically corporate or governmental, which pays interest over a set period until maturity.

Repurchasing

The act of a company buying back its own shares from shareholders, reducing the amount of stock available on the open market.

Statement of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows and outflows a company receives from its operating, investing, and financing activities.

Operating Activities

Activities that relate to the core operations of a company, including production, sales, and delivery of the company's products and services.