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

question 21

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 early-exercise premium of a 100-strike, six-month American put option?

• A) $0.15
• B) $0.17
• C) $0.89
• D) $1.12

---

Definitions:

Constitutional Rights

Rights granted and protected by a country's constitution, ensuring certain freedoms and protections to its citizens.

The Ends Justify The Means

A consequentialist belief that a morally good outcome may justify methods that are considered morally questionable or reprehensible.

Retribution

The concept of punishment inflicted on someone as vengeance for a wrong or criminal act, focusing on making the punishment fit the crime.

Civil Liberties

Individual rights protected by law from unjust governmental or other interference.