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

question 13

Multiple Choice

A binomial tree with three-month time steps is used to value a currency option.The domestic and foreign risk-free rates are 4% and 6% respectively.The volatility of the exchange rate is 12%.What is the probability of an up movement?

• A) 0.4435
• B) 0.5267
• C) 0.5565
• D) 0.5771

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Definitions:

Depression

A disorder in mental health, identified by enduring feelings of depression or a decreased interest in activities, significantly affecting life on a day-to-day basis.

Schizophrenia

A long-term mental disorder involving a breakdown in the relation between thought, emotion, and behavior, leading to faulty perception and inappropriate actions.

Deep Brain Stimulation

A neurosurgical procedure involving the implantation of a medical device called a brain pacemaker, which sends electrical impulses to specific parts of the brain.

Depression

A syndrome linked to mental wellness, involving long-term downheartedness or disengagement in regular interests, thereby gravely impacting regular life operations.