The Current Price of a Stock Is $50

question 27

Multiple Choice

The current price of a stock is $50. Every month, the stock price will rise by a factor of 1.2 or fall by a factor of 0.8; and a $1 risk-free investment will be worth $1.03. Dividends are paid as a proportion of 0.02 of the stock price. What can you say about the the 49-strike, European and American six-month calls if the risk-less investment grows to $1.05 (instead of $1.03) each period, and the dividend rate increases to 0.04?

• A) The European call rises in value and the American call rises in value.
• B) The European call rises in value and the American call falls in value.
• C) The European call falls in value and the American call rises in value.
• D) The European call falls in value and the American call falls in value.

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Definitions:

Genetic Variation

The diversity of gene frequencies within a population, which drives evolution by enabling adaptation to changing environments.

Heritability

The proportion of observed variation in a particular trait, within a population, that can be attributed to inherited genetic factors as opposed to environmental influences.

Genome Wide Association

A study approach that involves rapidly scanning markers across complete sets of DNA, or genomes, of many people to find genetic variations associated with a particular disease.

Quantitative Trait Locus

A Quantitative Trait Locus (QTL) is a region of DNA that is associated with a particular phenotypic trait, which varies in degree and can be attributed to polygenic effects.