USe the Following Data for a Single-Period Binomial Model to Answer

question 5

Multiple Choice

USe the following data for a single-period binomial model to answer the questions that follow.
YBM's stock price S is $102 today.
- After six months,the stock price can either go up to $115.63212672,or go down to $93.52995844.
- Options mature after T = 6 months and have an exercise price of K =$105.
- The continuously compounded risk-free interest rate r is 5 percent per year.
-Given the above data,the hedge ratio and the call option's value are given by:

• A) 0.2523 for the hedge ratio and $4.1853 for the call option's value
• B) 0.3810 for the hedge ratio and $5.5557 for the call option's value
• C) 0.4810 for the hedge ratio and $5.1853 for the call option's value
• D) 0.5810 for the hedge ratio and $6.2543 for the call option's value
• E) None of these answers are correct.

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Definitions:

Pro Forma Net Income

A projected net income over a specific period, calculated under hypothetical assumptions or adjustments.

Profit Margin

A financial metric that measures the percentage of revenue that exceeds the costs of goods sold, indicating the profitability of a company.

Sales Decrease

A reduction in the amount of goods or services sold by a business within a specific time period.

Equity Financing

The method of raising capital through the sale of shares, offering investors ownership interests in the company.