A Binomial Tree with One-Month Time Steps Is Used to Value

question 7

Multiple Choice

A binomial tree with one-month time steps is used to value an index option.The interest rate is 3% per annum and the dividend yield is 1% per annum.The volatility of the index is 16%.What is the probability of an up movement?

• A) 0.4704
• B) 0.5065
• C) 0.5592
• D) 0.5833

---

Definitions:

Relaxation

a state or activity aimed at reducing tension, stress, and anxiety, promoting physical and mental well-being.

Labor

The process of childbirth, especially the period from the start of uterine contractions to delivery.

Cervix Dilation

The opening of the cervix, measured in centimeters, during labor to allow for the passage of the baby from the uterus into the birth canal.

Childbirth

The process of delivering a baby from the womb to the outside world, marking the end of pregnancy.