Exhibit 22.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 31

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. Estimate n, the number of call options that must be written.

• A)-1.4286
• B)-2.9286
• C)-2.8571
• D)-2.5714
• E)-1.1111

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Definitions:

Dreams

Mental experiences that occur during sleep, featuring imagery, thoughts, and emotions.

Waking

The state of being awake, characterized by consciousness, awareness, and engagement with the environment.

Dissociation Theory

A psychological theory that explains a disconnection between a person's thoughts, memories, feelings, actions, or sense of identity.

Ernest Hilgard

A psychologist known for his research on hypnosis, especially in the context of pain control and the theory of the "hidden observer."