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

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Definitions:

Attendance Policy

An attendance policy is a set of rules or guidelines regarding the expectations and requirements for attendance to classes, work, or events.

Registered Students

Individuals who have completed the enrollment process for a course or academic program.

Normally Distributed

Describes a symmetric, bell-shaped frequency distribution that is characterized by its mean, median, and mode being equal.

Specification Limit

Predetermined bounds or values within which a product, process, or service must operate to be considered acceptable according to its quality standards.