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

question 14

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. Calculate the possible prices of the stock one year from today.

• A) $37.50 or $17.50.
• B) $62.50 or $37.50.
• C) $62.50 or $17.50.
• D) $50 or $45.
• E) None of the above.

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Definitions:

Sale

The act of selling or exchanging goods or services for money or other compensation.

Rafts

Platforms or structures made of buoyant materials, often wood, used for transport or as a floating base.

Main Purpose Rule

A legal principle stating that if the main purpose of a transaction is to benefit the guarantor, then a written agreement isn't necessary to enforce the guaranty.

Debt

An amount of money borrowed by one party from another, with the condition that it is to be paid back, often with interest.