Exhibit 14-2 USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(S)

question 9

Multiple Choice

Exhibit 14-2
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(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, a call option on the stock has an exercise price of $45. The stock is equally likely to rise by 25% or fall by 25%. The one-year risk free rate is 2%.
-Refer to Exhibit 14-2. Estimate n, the number of call options that must be written.

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

---

Definitions:

Guarantee

A formal assurance or promise, often by a manufacturer or seller, that certain conditions will be fulfilled, such as the quality or durability of a product.

Indemnity

A financial compensation mechanism for loss or damage, or provision for protection against potential financial liability.

Guarantee

A formal promise or assurance, typically in writing, that certain conditions will be fulfilled, particularly relating to product quality or loan repayment.

Indemnity

Protection or security against financial liability or loss.