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:

Attachment

The act of taking a person’s property and bringing it into the custody of law.

UPA

Uniform Partnership Act, which is legislation adopted by several states to provide a standard for the governance of business partnerships, including the rights and duties of partners.

Economic Interest

A financial stake or involvement in an enterprise or transaction that has the potential to affect an individual's or entity's wealth.

Surplus

Funds that remain after a partnership has been dissolved and all other debts and prior obligations have been settled.