A Stock Is Currently Trading at $100 $u = 1.10$ Or Fall by a Factor Of

question 31

Multiple Choice

A stock is currently trading at $100.In each month,the stock will either increase in price by a factor of $u = 1.10$ or fall by a factor of $d = 0.90$ .The risk-free rate of interest per month is 0.1668% in simple terms,i.e. ,an investment of $1 at the risk-free rate returns $1.001668 after one month.What is the price of a 100-strike,six-month European call option when a dividend of $1 is paid at the end of each month? (Assume that if the option is exercised,it is done just before a dividend payment. )

• A)$7.20
• B)$7.50
• C)$7.70
• D)$8.20

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Definitions:

Unconditioned Reflexes

Natural, automatic responses to stimuli that occur without any prior learning or conditioning.

Conditional Stimuli

A previously neutral stimulus that, after becoming associated with the unconditioned stimulus, eventually comes to trigger a conditioned response.

Unconditioned Stimuli

Stimuli that naturally and automatically trigger a response without prior conditioning.

Variable-Ratio Schedule

A schedule in which reinforcement is provided after a variable number of correct responses.