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

question 5

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 price of the call option today (C₀) .

• A) $7.56
• B) $17.48
• C) $9.26
• D) $5.0
• E) $17.15

---

Definitions:

Mutual Mistakes

A situation in a contract where all parties have a misunderstanding or incorrect belief about a basic assumption on which the contract is based.

Voidable

A term for an agreement or contract that may appear valid but can be legally voided by one of the parties.

Concealment

The active hiding of the truth about a material fact.

Nondisclosure

A legal agreement or clause that prohibits sharing confidential information with unauthorized parties.