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

question 13

Multiple Choice

A binomial tree with three-month time steps is used to value a currency option.The domestic and foreign risk-free rates are 4% and 6% respectively.The volatility of the exchange rate is 12%.What is the probability of an up movement?

• A) 0.4435
• B) 0.5267
• C) 0.5565
• D) 0.5771

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Definitions:

Resting Potential

The difference in electric charge between the inside and outside of a neuron's cell membrane when the neuron is not actively transmitting a signal.

Electrical Charge

A physical property that causes objects to experience a force when placed in an electromagnetic field, typically described as positive or negative.

Action Potential

A temporary reversal of the electrical polarity of the cell membrane that travels along a neuron, enabling the transmission of nerve impulses.

Neurotransmitters

Chemical substances in the nervous system that transmit signals from one neuron to another across synapses.