Using the Binomial Pricing Model,the Calculated Price of a One-Year

question 42

Multiple Choice

Using the binomial pricing model,the calculated price of a one-year put option on KD stock with a strike price of $20 is closest to:

• A)-7.7
• B)2.4
• C)4.6
• D)-1.8

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Definitions:

Dividend

A portion of a company's earnings that is paid to shareholders, usually on a quarterly basis, as a reward for owning the stock.

Liability

A company's financial debt or obligations that arise during the course of its business operations, required to be settled over time.

Stock Split

A corporate action that increases the number of shares in a company, leading to a decrease in the price per share while keeping the market capitalization the same.

Shares Outstanding

The total number of company's shares that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares.