The Current Price of a Stock Is $22, and at the End

question 1

Multiple Choice

The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binominal model, what is the option's value?

• A) $2.43
• B) $2.70
• C) $2.99
• D) $3.29
• E) $3.62

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Definitions:

Blastulation

An early stage in embryonic development that results in the formation of a blastula, a sphere of cells surrounding a fluid-filled cavity.

Gray Crescent

An area that appears on the surface of amphibian eggs following fertilization, indicating where the dorsal side of the embryo will develop.

Cleavage

The series of cell divisions of a fertilized egg that leads to the formation of the embryo.

Programmed Cell Death

A regulated process by which cells intentionally die, playing a crucial role in organism development and health.