Use the Following Data for an Eight-Period Binomial Model to Answer

question 5

Multiple Choice

Use the following data for an eight-period binomial model to answer the questions that follow.
- The stock's price S is $100.The stock price evolves according to an eight-period binomial model.
- Options mature after T = 1 year and have a strike price of K = $70.
- The continuously compounded risk-free interest rate r is 5 percent per year.
- The annualized volatility of stock price returns $\sigma$ = 0.25 or 25 percent per year.
-Today's price of a European put in this eight-period binomial model is:

• A) $0.1107
• B) $0.3719
• C) $0.3910
• D) $1.2798
• E) None of these answers are correct.

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