The Current Stock Price of Johnson and Johnson Is $64

question 18

Multiple Choice

The current stock price of Johnson and Johnson is $64 and the stock does not pay dividends. The instantaneous risk free rate of return is 5%. The instantaneous standard deviation of J&J's stock is 20%. You wish to purchase a call option on this stock with an exercise price of $55 and an expiration date 73 days from now.
-The stock price of Bravo Corp.is currently $100.The stock price a year from now will be either $160 or $60 with equal probabilities.The interest rate at which investors invest in riskless assets at is 6%.Using the binomial OPM,the value of a put option with an exercise price of $135 and an expiration date one year from now should be worth __________ today.

• A) $34.09
• B) $37.50
• C) $38.21
• D) $45.45

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Definitions:

Annual Payments

Regular payments made once a year, often associated with loans, annuities, or investment returns.

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment’s cost.

Lottery

A form of gambling involving the drawing of numbers at random for a prize.

Compounded Monthly

Interest on an investment or loan calculated monthly and added to the principal sum for future interest calculations.