Suppose VS's Stock Price Is Currently $20

question 17

Multiple Choice

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

• A) $5.00
• B) $2.14
• C) $7.86
• D) $8.23

---

Definitions:

Return On

A financial ratio that measures the amount of return generated relative to the investment made.

Earnings Per Share

A measure of a company's profitability, calculated as the net income divided by the number of outstanding shares of its common stock.

Return On

A financial ratio indicating the profitability of an investment compared to its cost.

Stockholders' Equity

Refers to the residual interest in the assets of a corporation after deducting its liabilities.