Use the Following Data for a Two-Period Binomial Model to Answer

question 24

Multiple Choice

Use the following data for a two-period binomial model to answer the questions that follow.
- The stock's price S is $100.After three months,it either goes up and gets multiplied by the factor U =1.13847256,or it goes down and gets multiplied by the factor D = 0.88664332.
- Options mature after T = 0.5 year and have a strike price of K = $105.
- The continuously compounded risk-free interest rate r is 5 percent per year.
- Today's European call price is c and the put price is p.Call prices after one period are denoted by c_U in the up node and c_D in the down node.Call prices after two periods are denoted by c_UD in the "up,and then down node" and so on.Put prices are similarly defined.
-The stock price tree (in dollars) is given by:

• A) S = 100;US = 113.8473 and DS = 88.6643;U ²S = 135.3238,UDS = 100,and D²S = 74.2672
• B) S = 100;US = 113.8473 and DS = 88.6643;U ²S = 129.6120,UDS = 100.9419,and D²S = 78.6136
• C) S F= 100;US = 113.8473 and DS = 88.6643;U ²S = 123.9862,UDS =101.5113,and D²S =83.1104
• D) S = 100;US = 113.8473 and DS = 88.6643;U ²S =130.2617,UDS=101.4479,and D²S = 79.0077
• E) None of these answers are correct.

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