A Stock Is Currently Trading at $100 $u = 1.10$ Or Fall by a Factor Of

question 13

Multiple Choice

A stock is currently trading at $100. In each month, the stock will either increase in price by a factor of $u = 1.10$ or fall by a factor of $d = 0.90$ . The risk-free rate of interest per month is 0.1668% in simple terms, i.e., an investment of $1 at the risk-free rate returns $1.001668 after one month. What is the price of a 100-strike, three-month European call option?

• A) $7.10
• B) $7.30
• C) $7.50
• D) $7.70

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