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

question 24

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 binomial model, what is the option's value? (Hint: Use daily compounding.)

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

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Definitions:

Zygote

The initial cell formed when a sperm cell fertilizes an egg cell, which then undergoes division and development to form an embryo.

Fallopian Tube

A pair of tubes leading from the ovaries of female mammals into the uterus, important for conveying eggs to the site of fertilization.

Conception

The beginning of the biological development process when a sperm fertilizes an egg, leading to the formation of a zygote.

Prenatal Period

The stage of development that occurs in the womb from conception until birth, critical for the physical and mental development of the unborn child.