Use the Information for the Question(s)below

question 14

Multiple Choice

Use the information for the question(s) below.
The current price of KD Industries stock is $20.In the next year the stock price will either go up by 20% or go down by 20%.KD pays no dividends.The one-year risk-free rate is 5% and will remain constant.
-Using risk-neutral probabilities,the calculated price of a one-year call option on KD stock with a strike price of $20 is closest to:

• A)$1.45.
• B)$2.40.
• C)$2.00.
• D)$2.15.

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Definitions:

Level Material Use

A strategy in operations management aimed at maintaining a consistent use of materials over time to achieve smooth production flow.

Facilities

Buildings, equipment, services, and installations needed for the smooth operation of an organization or for performing a specific activity.

Input-Output Control

A method of managing and regulating the flow of materials and products in a production process, from initial input to final output.

Johnson's Rule

Johnson's rule is a scheduling algorithm used in operations management to minimize the total processing time and optimize the job sequence through different stages in a manufacturing process.