The Price of a Stock Is Currently $50

question 65

Multiple Choice

The price of a stock is currently $50. Over the course of the next year, the price is anticipated to rise to $55 or decline to $46. If both outcomes are equally likely and the risk free interest rate is 3%, what is the price of a one year call option with an exercise price of $50 using the binomial model?

• A) $2.43
• B) $2.50
• C) $2.66
• D) $2.70

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Definitions:

Iconic Memory

A form of sensory memory that temporarily holds visual images before they fade or are processed further.

Sensory Memory

The shortest-term element of memory, which retains impressions of sensory information after the original stimuli have ended.

Automatically Processed

Information that is processed in the mind effortlessly and without the need for conscious thought.

Email Checking

The action of looking through one's email inbox to read or manage incoming messages, often considered a routine part of personal and professional life.