USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 1

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. Estimate n, which is the number of call options that must be written.

• A) -1.4286
• B) -2.9286
• C) -2.8571
• D) -2.5714
• E) -1.1111

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Definitions:

Overallocation

The excessive assignment or distribution of resources towards a particular area or sector, often leading to inefficiency.

Farm Policy

Encompasses government regulations and actions aimed at stabilizing or supporting the agricultural sector, including subsidies, price supports, and land use regulations.

Low Farm Income

An economic condition where farmers earn less revenue from their produce, often due to factors like falling prices, poor yields, or high costs of inputs.

Food, Conservation, and Energy Act

A federal law in the United States that governs agricultural and food policy, often known as the Farm Bill, encompassing aspects such as nutrition assistance, crop insurance, and conservation efforts.