A Stock Is Currently Trading at $100 $u = 1.05$ Or Fall by a Factor Of

question 5

Multiple Choice

A stock is currently trading at $100. In each period of a binomial tree, the stock will either increase in price by a factor of $u = 1.05$ or fall by a factor of $d = 0.90$ . The risk-free rate per period of the binomial tree is 0.1668%, i.e., an investment of a dollar at the risk-free rate returns $1.001668 after one period. What is the risk-neutral probability of the stock finishing in the money on a 100-strike, two-month call option?

• A) 0.46
• B) 0.50
• C) 0.89
• D) 0.90

---

Definitions:

Standard Costs

Predetermined costs for materials, labor, and overhead used in budgeting and assessing performance.

Labor Efficiency Variance

A measure of the difference between the actual hours worked by employees and the standard hours expected to complete a task, used to assess labor productivity.

Direct Labor Standards

These standards define the amount of time and the rate of pay anticipated for direct labor required to manufacture a product or provide a service.

Actual Direct Labor Cost

Actual direct labor cost is the total amount of money paid for the wages of laborers directly involved in the production of goods or services.