Use the Information for the Question(s)below

question 25

Essay

Use the information for the question(s)below.
The current price of Kinston Corporation stock is $10.In each of the next two years,this stock price can either go up by $3.00 or go down by $2.00.Kinston stock pays no dividends.The one-year risk-free interest rate is 5% and will remain constant.
-Using the binomial pricing model,calculate the price of a two-year call option on Kinston stock with a strike price of $9.

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Definitions:

Fixed Cost

Financial obligations that are static and do not vary with production levels or sales numbers, such as rent, salary payments, and insurance fees.

Activity Level

A measure of the volume of production or operations, often used in cost accounting to allocate variable and fixed costs appropriately.

Mixed Cost

A cost that contains both variable and fixed cost elements, making its total expense vary with changes in the level of output.

Fixed Cost

Expenses that do not fluctuate with changes in production volume, staying constant even as production levels vary.