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:

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since it was put into use, reflecting its loss of value over time.

Gain Or Loss

The financial result when the selling price of an asset differs from its cost, resulting in either profit (gain) or deficit (loss).

Original Cost

The initial purchase price or investment made to acquire an asset, not accounting for depreciation or amortization.

Asset Improvements

Expenditures made to increase the usefulness or value of a fixed asset.