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

question 3

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 is equal to 0.52, what is the one-month forward price of the stock?

• A) $99.48
• B) $100.40
• C) $100.48
• D) $100.52

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Definitions:

Break-even

The juncture where overall expenses match total income, indicating neither profit nor loss is present.

Unit Sales

The total quantity of an item or product sold.

Contribution Margin Ratio

A ratio that measures the proportion of each sales dollar remaining after variable costs have been deducted.

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit of a product, indicating how much each unit sold contributes to covering fixed costs and generating profit.