Two Stocks a and B Both Have a Current Price

question 4

Multiple Choice

Two stocks A and B both have a current price of $100 and are identical in every way except that the risk-neutral probability of default of A in three months is 10%,and that of B is zero.Assume a CRR-style jump-to-default model in which the volatility of both stocks is 30%.The risk-free rate is 2%.Consider the price of three-month at-the-money call options on these two stocks in a one-period jump-to-default tree model.Which of the following statements is valid?

• A)The call option on A is worth less than the call option on B.
• B)The call option on A is worth the same as the call option on b.
• C)The call option on A is worth more than the call option on B.
• D)There is insufficient information to determine which option is worth more.

Understand the importance of selecting the appropriate graphic type for presenting specific data.

Recognize the impact of arbitrary design changes in organizational reports on reader perception and attention.

Understand what frequency marketing is and how it's applied.

Comprehend the effect of variable reinforcements and their role in behavior persistence.

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Definitions:

Frictional Unemployment

A form of unemployment that occurs when individuals are temporarily between jobs, entering the workforce, or transitioning from one position to another.

Job Search

The process by which individuals seek to find new employment, utilizing various methods and resources to discover job opportunities.

Challenging Work

Challenging Work refers to job tasks that are demanding but provide a sense of accomplishment and progression, often leading to increased job satisfaction and motivation.

Unanticipated Inflation

Inflation that occurs when the rate of inflation exceeds what was expected, potentially leading to distortions in economic decisions and agreements.