The Price of a Stock Is Currently $37

question 69

Multiple Choice

The price of a stock is currently $37. Over the course of the next year, the price is anticipated to rise to $40 or decline to $36. If the upside has a 65% probability of occurring and the risk free interest rate is 3%, what is the price of a one year call option with an exercise price of $35 using the binomial model?

• A) $1.43
• B) $1.50
• C) $1.26
• D) $2.70

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Definitions:

Globalization

The process of interaction and integration among people, companies, and governments worldwide, driven by international trade and investment.

Corporate Social Responsibility

The concept that companies should be accountable for their impact on society and the environment and act in ways that are beneficial beyond their financial interests.

Individualism

A social theory favoring freedom of action for individuals over collective or state control, emphasizing the importance of individual autonomy and self-reliance.

Collectivism

A cultural value or social outlook that emphasizes the importance of groups and collective action over individual achievement or identity.