USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 60

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The information provided is relevant in the context of a one period (one year) binomial option pricing model. A stock currently trades at $50 per share, and a call option on the stock has an exercise price of $45. The stock is equally likely to rise by 25 percent or fall by 25 percent. The one-year, risk-free rate is 2 percent.
-Refer to Exhibit 16.5. Calculate the possible prices of the stock one year from today.

• A) $37.50 or $17.50.
• B) $62.50 or $37.50.
• C) $62.50 or $17.50.
• D) $50 or $45.
• E) None of the above.

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Definitions:

Macrosociological

Pertaining to the study of large-scale social structures and processes, such as institutions, societal evolution, and major social transformations.

Positivistic

Pertaining to the philosophy of positivism, which asserts that the only authentic knowledge is scientific knowledge, and such knowledge can only come from positive affirmation of theories through strict scientific method.

Social Problems

Issues within a society that are recognized by a significant number of people as being undesirable or needing improvement.

Industrial Revolution

A period of major industrialization from the late 18th to early 19th centuries that transformed primarily agrarian, rural societies in Europe and America into industrialized, urban ones.