Consider a Binomial Tree Setting in Which in Each Period $u = 1.10$

question 17

Multiple Choice

Consider a binomial tree setting in which in each period the price goes up by $u = 1.10$ (with probability $p = 0.60$ ) or down by $d = 0.90$ (with probability $1 - p = 0.40$ ) .The risk-free interest rate per time step is zero,so a dollar invested at the beginning of the period returns a dollar at the end of the period. In this setting,the risk-neutral probability of a two-period call with strike $K = 95$ finishing in-the-money is

• A)0.25
• B)0.36.
• C)0.75
• D)0.84

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Definitions:

Perceived Distance

The subjective experience or estimation of how far away an object is from the observer.

Perceived Size

An individual's subjective interpretation or impression of the size of an object, which can be influenced by various visual cues and psychological factors.

Relative Motion

The calculation of the motion of an object with regard to some other moving or stationary object.

Gestalt Psychologists

A set of theorists in psychology who propose that psychological phenomena should be viewed as organized, structured wholes - a perspective focusing on the entirety of mind and behavior patterns.