Consider a Two-Period Binomial Model,where Each Period Is 6 Months

question 10

Multiple Choice

Consider a two-period binomial model,where each period is 6 months.Assume the stock price is $50.00,σ = 0.20,r = 0.06 and the dividend yield = 3.5%.What is the lowest strike price where early exercise would occur with an American put option?

• A) $50
• B) $55
• C) $60
• D) $65

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, used to cover fixed costs and generate profits.

Gross Margin

Gross Margin is the difference between revenue and the cost of goods sold, divided by revenue, expressed as a percentage. It indicates the percentage of revenue that exceeds the cost of goods sold.

Special Order

A special order refers to a one-time order that is not part of the regular, ongoing business operations and usually requires consideration of additional costs and pricing.

Capacity

The maximum level of output that a company can sustain to make a product or provide a service.