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

question 7

Multiple Choice

Consider a two-period binomial model,where each period is 6 months.Assume the stock price is $60.00,σ = 0.30,r = 0.05.An American put option with a strike price of $65 would be exercised early at what dividend yield?

• A) 5.0%
• B) 6.0%
• C) 11.0%
• D) Never exercised early

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Definitions:

IAS 28

An International Accounting Standard governing the accounting for investments in associates and joint ventures.

Equity Method

An accounting technique used to assess the investments in other companies where the investor has significant influence but not full control.

Patent

A form of intellectual property right that grants the patent holder exclusive rights to an invention for a certain time period, preventing others from making, using, selling, or distributing the patented invention without permission.

Significant Influence

A level of control in an investment, usually signifying the ability to participate in financial and operating policy decisions of the investee without having full control.