A Stock with a Current Price of $38 Will Either

question 48

Multiple Choice

A stock with a current price of $38 will either move up by a factor of 1.10 or down by a factor of .90 each period over the next two periods. The risk-free rate of interest is 4 percent. What is the current value of a call option with a strike price of $40?

• A) $2.36
• B) $2.52
• C) $2.71
• D) $3.09
• E) $3.13

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Definitions:

Express Contracts

Contracts in which the terms are stated explicitly and can be oral or written.

Uniform Commercial Code

A comprehensive set of laws governing commercial transactions in the United States, intended to standardize and simplify the law across states.

Personal Property

Describes movable assets or belongings that are not permanently attached to or part of real estate; includes items such as furniture, vehicles, and electronics.

Promissory Estoppel

A rule of law that bars an individual from retracting a commitment made to another if the second party has justifiably depended on this pledge to their harm.