The Current Price of a Stock Is $22, and at the End

question 24

Multiple Choice

The current price of a stock is $22, and at the end of one year its price will be either $27 or $17.The annual risk-free rate is 6.0%, based on daily compounding.A 1-year call option on the stock, with an exercise price of $22, is available.Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)

• A) $2.43
• B) $2.70
• C) $2.99
• D) $3.29
• E) $3.62

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Definitions:

Isolated Type

Denotes a classification or category typically used in psychology or psychiatry to describe individuals who prefer solitude and show little interest in social interactions.

Chronic Alcoholic

An individual suffering from alcoholism for a long duration, showing a consistent pattern of excessive drinking despite negative consequences.

Anxious Attachment

An anxious, uncertain, and clingy style of attachment; in some models, includes a negative view of the self.

Harry Harlow

An American psychologist best known for his research on social isolation, maternal-separation, and dependency needs of rhesus monkeys, which played a significant role in understanding human emotional and social development.