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

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Definitions:

Myelin

A fatty substance that encases and insulates nerve fibers, facilitating faster transmission of electrical impulses along neurons.

Frontal Lobe

The part of the brain located at the front of the cerebral cortex, responsible for higher cognitive functions like decision making, problem solving, and social behavior.

Menarche

The occurrence of the first menstrual period in a female, marking the onset of reproductive capability.

Menstrual Period

The phase in the menstrual cycle where bleeding occurs from the uterus, typically lasting a few days and happening every 28 days or so in human females.