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

---

Definitions:

Antibacterial Liquid Soap

A type of soap containing agents designed to kill bacteria and other germs, used for cleansing the skin.

Scrubbing Hands

The process of thoroughly cleaning the hands with soap and water, often for a specified period, to remove germs and prevent infection transmission.

Acquired Active Immunity

Immunity developed through exposure to pathogens or through vaccination, leading to the production of antibodies.

Natural Passive Immunity

Immunity acquired by a newborn through transfer of antibodies from the mother, either through the placenta or breast milk.