Suppose That in a Binomial Model,the Stock Moves Up by a Factor

question 14

Multiple Choice

Suppose that in a binomial model,the stock moves up by a factor $u = e ^{ ? \sqrt { h }}$ and down by a factor $d = e ^ { - \sigma - \sqrt { h } }$ ,where $h$ is time in years.Letting $h =$ one month and $u = 1.05$ ,what is the annualized volatility $\sigma$ of the stock?

• A)6.93%
• B)10.39%
• C)13.86%
• D)16.90%

---

Definitions:

Divestiture

Corporate action of selling off subsidiary business units or interests.

Business Transaction

An exchange between two or more parties that involves the buying, selling, or trading of goods, services, or information.

Subsidiary Business

A company that is completely or partially owned and controlled by another company, known as the parent company.

Company Intranet

A private network used by a company to securely share corporate information and computing resources with its employees.