Use the Information for the Question(s)below

question 8

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.
-The risk-neutral probability of an up state for KD Industries is closest to:

• A)37.5%.
• B)60.0%.
• C)40.0%.
• D)62.5%.

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Definitions:

Enforce

To compel observance of or compliance with a law, rule, or obligation.

Consideration

The concept in contract law that involves something of value exchanged between parties, which is necessary for a contract to be considered legally binding.

Lesser Sum

An amount of money that is smaller in comparison to another sum, often within the context of payment obligations or settlements.

Debt

An obligation owed by one party (the debtor) to a second party (the creditor), typically involving borrowed money that is expected to be paid back with interest.