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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Definitions:

Range

The difference between the highest and lowest values in a set; or in functions, the set of all possible output values.

\(g ( x )\)

A function notation similar to \(f ( x )\), where \(g\) represents another function with the variable \(x\).

Thermostat

A device used to maintain the temperature of a system at a desired set point by regulating the flow of heat energy.

Degrees Fahrenheit

A temperature scale where water's freezing point is at 32 degrees and its boiling point is at 212 degrees, given standard atmospheric conditions.