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

question 19

Multiple Choice

In a one-period binomial model, assume that the current stock price is $100, and that it will rise to $115 or fall to $80 after three months. If risk-free investment has a gross return of 1.005 per three month time-step, what is the best replicating portfolio of one hundred 101-strike three-month put options from the following options?

• A) Short 60 shares of stock and long 69 units of $1 bonds.
• B) Short 65 shares of stock and long 70 units of $1 bonds.
• C) Short 65 shares of stock and short 69 units of $1 bonds.
• D) Short 65 shares of stock and short 70 units of $1 bonds.

---

Definitions:

Total Product

The total quantity of output produced by a firm over a given period as a result of inputs.

Economic Profit

The divergence between an organization's total income and its comprehensive costs, incorporating both overt and implicit expenses.

Average Total Cost

The total cost divided by the number of goods produced, representing the per-unit production cost.

Product Price

The amount of money required to purchase a good or service, determined by various factors including production costs, market demand, and competitive dynamics.