In a One-Period Binomial Model, Assume That the Current Stock

question 17

Multiple Choice

In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $110 or fall to $90 after one month. If the risk-neutral probability of the stock going up or down is equal, what is the one-month risk-free interest rate in continuously-compounded and annualized terms?

• A) 0%
• B) 1%
• C) 2%
• D) 3%

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