Suppose a Stock Is Currently Trading for $23,and in One

question 18

Multiple Choice

Suppose a stock is currently trading for $23,and in one period it will either increase to $30 or decrease to $20.If the one-period risk-free rate is 5%,what is the price of a European call option that expires in one period and has an exercise price of $25?

• A)$1.25
• B)$1.98
• C)$1.50
• D)$2.21
• E)$2.50

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Definitions:

Cucumbers

Edible, green fruits from the Cucumis sativus plant, often consumed in salads or as a garnish.

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Professionals who study how people's thoughts, feelings, and behaviors are influenced by the actual, imagined, or implied presence of others.