Consider a Binomial World in Which the Current Stock Price

question 56

Multiple Choice

Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent.The risk-free rate is 4 percent.Assume a one-period world.Answer questions 12 through 15 about a call with an exercise price of 80.
-What would be the call's price if the stock goes up?

• A)3.60
• B)8.00
• C)5.71
• D)4.39
• E)none of the above

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