Suppose a Stock Is Currently Trading for $35,and in One

question 55

Multiple Choice

Suppose a stock is currently trading for $35,and in one period it will either increase to $38 or decrease to $33.If the one-period risk-free rate is 6%,what is the price of a European put option that expires in one period and has an exercise price of $36?

• A)$1.55
• B)$1.50
• C)$3.00
• D)$0.51
• E)$2.49

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Definitions:

Credit Memo

A document issued by a seller to a buyer, reducing the amount owed by the buyer under specified circumstances, like returns or discounts.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts, thereby preparing the books for the next period.

Owner's Drawings

The amount of money taken from the business by the owner for personal use, not considered a business expense.

Sales Revenue

A company's total income from product sales or service charges prior to the deduction of any operational expenses.