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

question 8

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.
-If the stock pays a $1 dividend just before the end of the first three months,then today's price of a European put is:

• A) $2.44
• B) $5.73
• C) $9.12
• D) $16.03
• E) None of these answers are correct.

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Definitions:

Multiple Approach-avoidance Conflict

A psychological situation involving a decision between alternatives, each with both positive and negative elements.

Homeostasis

The tendency of the body to maintain a steady state.

Eustress

Positive stress that motivates and enhances one's functioning or performance.

External Locus of Control

The belief that one's life outcomes are largely determined by external forces beyond one's personal control or influence.