Suppose a Stock Is Currently Trading for $23,and in One

question 18

Multiple Choice

Suppose a stock is currently trading for $23,and in one period it will either increase to $30 or decrease to $20.If the one-period risk-free rate is 5%,what is the price of a European call option that expires in one period and has an exercise price of $25?

• A)$1.25
• B)$1.98
• C)$1.50
• D)$2.21
• E)$2.50

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Definitions:

Promissory Estoppel

A legal principle that prevents a party from withdrawing a promise made to another party if the latter has reasonably relied on that promise to their detriment.

Software Power

The capability and effectiveness of software in performing its intended functions and tasks efficiently.

Reduction in Force

A corporate strategy involving the reduction of a company's workforce to improve financial performance or adapt to changing market conditions.

Promissory Estoppel

A legal principle that prevents a party from withdrawing a promise that another party has reasonably and substantially relied on, even if no formal contract exists.