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

question 5

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 put option that expires in one period and has an exercise price of $25?

• A)$2.79
• B)$2.50
• C)$2.38
• D)$2.21
• E)$2.66

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Definitions:

Hans Eysenck

A psychologist known for his work in the field of personality theory, emphasizing the genetic basis of personality and intelligence.

Neurotic

Refers to an individual's tendency to experience negative emotional states, such as anxiety, depression, or anger, more frequently or intensely than what is considered normal.

Identical Twins

Twins who originate from a single fertilized egg that splits and develops into two embryos, sharing the same genes and often having very similar appearances and traits.

Nescience

Lack of knowledge or awareness; ignorance.