In a One-Period Binomial Model,assume That the Current Stock Price

question 13

Multiple Choice

In a one-period binomial model,assume that the current stock price is $100,and that it will rise to $110 or fall to $90 after one month.If an investment of a dollar at the risk-free rate returns $1.001668 after one month,and the 98-strike put option is trading at $2,how much arbitrage profit can you make in present value terms?

• A)$1.93
• B)$2.92
• C)$3.93
• D)$8.00

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