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.

---

Definitions:

Vacant Possession

A term in property law ensuring that a property is empty and available for the new owner or tenant at the time of sale or lease.

Quiet Enjoyment

A tenant's right to possess and use a property without interference from the landlord or other third parties claiming ownership.

Fee Simple

The most extensive interest in real property, providing the owner with full ownership rights indefinitely.

Trespass

The act of entering someone's land or property without permission.