If the Volatility of a Stock Is 20% Per Annum

question 6

Multiple Choice

If the volatility of a stock is 20% per annum and a risk-free rate is 5% per annum, which of the following is closest to the Cox, Ross, Rubinstein parameter p for a tree with a three-month time step?

• A) 0.50
• B) 0.54
• C) 0.58
• D) 0.62

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Definitions:

Consumer Surplus

Represents the difference between the total amount that consumers are willing to pay for a good or service and the total amount they actually pay.

Policy Price

The price set by government policy, often used in the context of agricultural products or utilities.

Government Policy

A plan of action or a set of decisions made by a government to guide public actions in a specific field or achieve certain goals.

Price Range

The spread between the highest and lowest selling price of a good or service in a particular market over a given period.