Suppose VS's Stock Price Is Currently $20

question 59

Multiple Choice

Suppose VS's stock price is currently $20.In the next six months it will either fall by 50% or rise by 50%.What is the current value of a call option with an exercise price of $15 and expiration of one year? The six-month risk-free interest rate is 5% (periodic rate) .Use the two stage binomial method.

• A)$5.00
• B)$2.14
• C)$7.86
• D)$8.23

---

Definitions:

Capital Contribution

The act of providing capital, either in the form of money or other assets, to a company or partnership by its owners or partners.

General Partner

An owner of a partnership who has unlimited liability and is typically involved in the day-to-day management of the business.

Trust Funds

Financial funds legally held by a trustee for the benefit of another party, known as the beneficiary.

Patent Leather

Patent Leather is a type of leather that has been finished with a high gloss, achieved through a coating process, often used in fashion items such as shoes, belts, and handbags.