USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 116

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 price of the call option after the stock price has already moved down in value once (C_d) .

• A) $7.77
• B) $14.35
• C) $0
• D) $4.21
• E) $6.44

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Definitions:

Retirement

The act of leaving one's job and ceasing to work, usually upon reaching a certain age or for health reasons, often marked by receiving pension or retirement savings.

Annual Withdrawal

Annual withdrawal often refers to the amount of money an individual elects to take out of an investment or savings account each year, potentially for retirement living expenses.

Trust Fund

A legal arrangement in which assets are held by a third party for the benefit of another party, often used for estate planning and to manage wealth.

Annual Return

The percentage change in investment value over a one-year period, accounting for any dividends or interest received and capital gains or losses.