Suppose Caroll's Stock Price Is Currently $20

question 64

Multiple Choice

Suppose Caroll's stock price is currently $20. In the each next six month periods it will either fall by 50% or rise by 100%. What is the current value of a one-year call option with an exercise price of $15? The six-month risk-free interest rate (periodic rate) is 5%. [Use the two stage binomial method]

• A) $8.73
• B) $10.03
• C) $16.88
• D) $13.33

---

Definitions:

Negative Reinforcement

A process in learning whereby the likelihood of a behavior is increased by removing or avoiding a negative outcome or stimuli.

Secondary Learning

Learning that builds on previously acquired knowledge, skills, or understanding, often involving the application of basic concepts to new situations.

Learned Helplessness

A condition in which a person suffers from a sense of powerlessness, arising from a traumatic event or persistent failure to succeed, leading to the belief that one's actions have no effect on outcomes.

Aversive Stimulus

A stimulus that is unpleasant or painful, which an organism seeks to avoid or escape.