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

question 7

Multiple Choice

A binomial tree with one-month time steps is used to value an index option.The interest rate is 3% per annum and the dividend yield is 1% per annum.The volatility of the index is 16%.What is the probability of an up movement?

• A) 0.4704
• B) 0.5065
• C) 0.5592
• D) 0.5833

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Definitions:

Renal Artery

A blood vessel that supplies the kidneys with oxygenated blood from the heart.

Nephron

The basic structural and functional unit of the kidney responsible for filtering and purifying blood to produce urine.

Distal Convoluted Tubule

The segment of the kidney's nephron that functions in the reabsorption of sodium, water, and secretion of potassium and acids, situated after the ascending limb of the loop of Henle.

Collecting Duct

A series of tubes in the kidney that receive urine from the nephrons and transport it into the renal pelvis.