Exhibit 22.5 Use the Information Below for the Following Problem(S)

question 63

Multiple Choice

Exhibit 22.5
Use the Information Below for the Following Problem(S)
The information provided is relevant in the context of a one period (one year) binomial option pricing model. A stock currently trades at $50 per share, a call option on the stock has an exercise price of $45. The stock is equally likely to rise by 25% or fall by 25%. The one-year risk free rate is 2%.
-Refer to Exhibit 22.5.Calculate the possible prices of the stock one year from today.

• A) $37.50 or $17.50.
• B) $62.50 or $37.50.
• C) $62.50 or $17.50.
• D) $50 or $45.
• E) None of the above.

---

Definitions:

Contractor

A person or corporation that agrees to a contract to supply materials or workforce to execute a service or complete a task.

Lien

A legal right or claim against a property by a creditor to ensure the payment of a debt.

County Clerk

An official in local government who manages public records and documents, particularly in relation to property and civil records.

Judicial Lien

A lien obtained by a creditor upon a debtor's property, authorized by a judgment, decree, or court order.