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.

---

Definitions:

Voucher System

A control or accounting system where vouchers (documents that prove a transaction) are used to authorize and record transactions in an accounts payable system.

Account Payable

The liability created by a purchase on account.

Credit Balance

A situation where the sum of credits in an account exceeds the sum of debits, often indicating a liability or revenue.

Cash Short

Cash Short refers to a situation where the actual amount of cash on hand is less than the recorded amount in the accounting records, indicating a discrepancy that needs investigation.