Exhibit 22.5 Use the Information Below for the Following Problem(S)

question 63

Multiple Choice

Exhibit 22.5
Use the Information Below for the Following Problem(S)
The information provided is relevant in the context of a one period (one year) binomial option pricing model. A stock currently trades at $50 per share, a call option on the stock has an exercise price of $45. The stock is equally likely to rise by 25% or fall by 25%. The one-year risk free rate is 2%.
-Refer to Exhibit 22.5.Calculate the possible prices of the stock one year from today.

• A) $37.50 or $17.50.
• B) $62.50 or $37.50.
• C) $62.50 or $17.50.
• D) $50 or $45.
• E) None of the above.

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Definitions:

Leverage/Commodity Items

The strategic use of commodity items, which are basic goods used in commerce that are interchangeable with other goods of the same type, to gain an advantage in negotiations or cost efficiency.

Bottleneck Items

Goods or components in the supply chain that slow down production or delivery due to their limited availability or high demand.

Cost Management

The process of planning and controlling the budget of a business or project, focusing on reducing expenses to improve profitability.

Internal Demand Analysis

The process of assessing the demand for a company's products or services within the company itself, often for budgeting or planning purposes.