Using the Binomial Model, What Is the Value of a Three

question 50

Multiple Choice

Using the binomial model, what is the value of a three month option given the following data and assuming there are no time periods other than three months? The exercise price is
$40; stock price is $46; the upside price is $48; the downside price is $34; the 3 month interest rate is 2%. The upside and down side have equal probabilities.

• A) $3.92
• B) $4.00
• C) $5.88
• D) $6.00

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Definitions:

Freud

An Austrian neurologist named Sigmund Freud introduced psychoanalysis, a therapeutic approach aimed at treating mental health issues through discussions between a psychoanalyst and their patient.

Thanatos

A concept in psychoanalytic theory referring to an instinctual drive towards death or self-destruction.

Coping Strategies

Techniques or methods that individuals use to manage or mitigate stressful or difficult situations.

Gender Difference

Variabilities in characteristics, behaviors, or attitudes between males and females, often influenced by biological, social, and cultural factors.