Exhibit 22.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 66

Multiple Choice

Exhibit 22.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is provided in the context of a two period (two six month periods) binomial option pricing model. A stock currently trades at $60 per share, a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15% or fall by 15% during each six month period. The one-year risk free rate is 3%.
-Refer to Exhibit 22.6. Calculate the price of the call option today (C₀) .

• A)$7.77
• B)$14.35
• C)$0
• D)$4.21
• E)$6.44

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Definitions:

Failure To Thrive Syndrome

A medical condition, often seen in infants, characterized by a failure to gain weight and grow as expected for age and sex.

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The process by which organisms take in and utilize food materials, essential for growth, repair, and maintenance of health.

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A genetic concept explaining how genotype restrictions lead to predetermined phenotypic outcomes despite environmental variations.

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A condition in which growth and development are significantly below the normal rates for age, often due to malnutrition or neglect.