Exhibit 14-3 USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(S)

question 110

Multiple Choice

Exhibit 14-3
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(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, a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15% or fall by 15% during each six month period. The one-year risk free rate is 3%.
-Refer to Exhibit 14-3. 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:

Pressure Switch

A switch activated at a specified pressure.

Hardwired Relay Control

A control system that uses physical electrical connections and relays for controlling machinery or processes.

Energized

Describes an electrical circuit or component that is active and under power, thereby capable of performing its intended function.

Electromagnet Control Relay

A relay device that uses an electromagnet to mechanically operate a switch, allowing lower power signals to control much larger power circuits.