The Current Price of a Non-Dividend Paying Stock Is $50

question 19

Multiple Choice

The current price of a non-dividend paying stock is $50.Use a two-step tree to value an American put option on the stock with a strike price of $48 that expires in 12 months.Each step is 6 months,the risk free rate is 5% per annum,and the volatility is 20%.Which of the following is the option price?

• A) $1.95
• B) $2.00
• C) $2.05
• D) $2.10

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Definitions:

Reflecting Feelings

A counseling technique that involves echoing the emotions of a client to validate their feelings and promote understanding.

Overshooting

Exceeding a target or expected outcome, often referring to economic indicators or personal goals.

Undershooting

The failure to achieve a targeted goal or objective, often resulting in outcomes that fall short of expectations.

Reflecting Skills

Techniques used in communication that involve mirroring the content or emotions of what another person has said to show understanding and empathy.