The Current Stock Price Is $100

question 8

Multiple Choice

The current stock price is $100. A $101--strike call option is priced at $7.55. The risk-free one-month rate of interest is 1% in continuously-compounded and annualized terms. Using the Derman-Kani (1994) tree technology for a single period, what is the price of the one-month at-the-money put option?

• A) $6.12
• B) $6.34
• C) $7.55
• D) $7.92

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Definitions:

FIFO vs. LIFO

A comparison between two inventory valuation methods: First-In, First-Out (FIFO), where goods first bought are the first to be sold, and Last-In, First-Out (LIFO), where goods most recently bought are the first to be sold.

P/E Ratios

The price-to-earnings ratio, a valuation metric for stocks calculated by dividing the current market price of a stock by its earnings per share.

Macroeconomic Variables

Economic indicators that represent the overall health and performance of an economy, such as GDP, inflation rates, and unemployment rates.

Inflation

The rate at which prices for commodities and services overall ascend, depleting the power of purchase.