If the Volatility of a Stock Is 20% Per Annum

question 1

Multiple Choice

If the volatility of a stock is 20% per annum and a risk-free rate is 5% per annum, which of the following is closest to the Cox, Ross, Rubinstein parameter u for a tree with a three-month time step?

• A) 1.05
• B) 1.07
• C) 1.09
• D) 1.11

---

Definitions:

Accounts Receivable

The total amount of money owed to a company by its customers for goods or services delivered or used but not yet paid for.

Inventories

Tangible property held for sale in the ordinary course of business, in the process of production for such sale, or to be currently consumed in the production of goods or services.

Accounts Payable

Money owed by a company to its creditors for products and services that have been received but not yet paid for.

Balance Sheet

A Balance Sheet is a financial statement that presents a company's assets, liabilities, and shareholders' equity at a specific point in time.