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

question 85

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 today (C₀) .

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

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Definitions:

Play-oriented

An approach or attitude focusing on play and enjoyment, often in the context of learning or creative activities.

Group-centred

Focused on or revolving around the interests and needs of the group as a whole.

Laissez-faire

A policy or attitude of letting things take their own course, without interfering, often referred to in economics to describe a free-market system with minimal government intervention.

Coercion

The practice of compelling someone to act in an involuntary manner by use of threats or force.