The Current Price of a Stock Is $22, and at the End

question 24

Multiple Choice

The current price of a stock is $22, and at the end of one year its price will be either $27 or $17.The annual risk-free rate is 6.0%, based on daily compounding.A 1-year call option on the stock, with an exercise price of $22, is available.Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)

• A) $2.43
• B) $2.70
• C) $2.99
• D) $3.29
• E) $3.62

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Definitions:

Permissable Operating Angles

The maximum angles at which certain mechanical components, such as driveshafts, can operate without causing damage or undue wear.

Driveshaft Rpm

Driveshaft Rpm (Revolutions per Minute) measures the rotational speed of the driveshaft in a vehicle, indicating how many times the shaft completes a full rotation in one minute.

U-joint Working Angles

The angles at which a universal joint operates, crucial for the proper transfer of rotary motion in drivelines.

Longitudinal Torque Rod

A rod in the suspension system of a vehicle that helps to manage longitudinal forces, aiding in the control of wheel alignment and handling.