The Current Price of a Non-Dividend Paying Stock Is $30

question 7

Multiple Choice

The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European put option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8%, and u = 1.1 and d = 0.9.

• A) $2.24
• B) $2.44
• C) $2.64
• D) $2.84

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Definitions:

Incandescent Bulbs

Light bulbs that produce light by heating a filament wire to a high temperature until it glows, known for their warm light but low efficiency.

Incandescent Bulb

A type of lighting that works by heating a filament inside a bulb until it glows, producing light.

Inert Gas

A gas which does not undergo chemical reactions under a set of given conditions, often used as a protective atmosphere.

Tachometer

An instrument used to indicate shaft speed.