USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 23

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is provided in the context of a two-period (two six-month periods) binomial option pricing model. A stock currently trades at $60 per share, and a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15 percent or fall by 15 percent during each six-month period. The one-year risk free rate is 3 percent.
-Refer to Exhibit 16.2. Calculate the possible prices of the stock at the end of one year.

• A) $69, $51, $79.35
• B) $51, $79.35, $58.65
• C) $79.35, $58.65, $43.35
• D) $58.65, $43.35, $14.35
• E) $72.65, $53.35, $17.25

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Definitions:

RRSP

Registered Retirement Savings Plan, a Canadian account for holding savings and investment assets, with tax benefits for retirement savings.

Annuity

A fiscal vehicle offering a steady payout to individuals, commonly employed in retirement strategy.

Payments

The act of transferring money from one party to another, often in exchange for goods, services, or to fulfill a legal obligation.

Compounded Quarterly

Interest added to the principal sum every quarter, or four times a year, resulting in the interest of the next period being calculated on the new total.