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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Definitions:

Independent Internal Verification

A process within a company to check the accuracy and completeness of transactions by having them reviewed by a third party or separate department.

Segregation

In business or accounting, this often refers to the separation of duties or resources to prevent errors or fraud; in broader societal terms, it can mean the division of groups based on characteristics.

Reconciliation

The process of ensuring that two sets of records (usually the balances of two accounts) are in agreement.

Ordering Merchandise

The process of acquiring goods or inventory for sale or business use through purchase or request.