Use the Information for the Question(s)below

question 26

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 risk-neutral probabilities,calculate the price of a two-year call option on Kinston stock with a strike price of $9.

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Definitions:

Extinction

In psychology, the gradual weakening and disappearance of a conditioned response when the conditioned stimulus is repeatedly presented without the unconditioned stimulus.

Obsessive-Compulsive Behaviors

Patterns of behavior characterized by intrusive thoughts (obsessions) and repetitive behaviors or mental acts (compulsions) performed in response.

Modeling

The process of representing real-life systems through mathematical formulas and simulations.

Social Withdrawal

The avoidance of social interactions and situations, often due to anxiety or preference for solitude.