Use the Information for the Question(s)below

question 31

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

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Definitions:

Advantages and Disadvantages

This term refers to the positive and negative aspects of a specific situation, decision, or strategy.

Legal Myth

A belief about the law or legal system that is not true or is based on incorrect assumptions.

Separate Existence

The legal principle that a corporation exists independently from its shareholders, affording protection to shareholders' personal assets.

Corporation

A legal entity that is separate and distinct from its owners, capable of owning property, entering into contracts, and being sued.