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

question 16

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 percent dividend just before the end of the first three months,then today's price of a European call is:

• A) $5.69
• B) $5.73
• C) $6.00
• D) $7.96
• E) None of these answers are correct.

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Definitions:

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A living entity consisting of one cell, like bacteria, or many cells, like plants, animals, and humans.

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Climate

The average weather conditions in a particular region over a long period, characterized by temperature, precipitation, and other factors.

Topography

The arrangement of the natural and artificial physical features of an area, including its elevations, valleys, and bodies of water.