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

question 1

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. The risk-free gross return per time step is 1.001668. If a 98-strike call option is trading at $2, how much arbitrage profit can you make in present value terms?

• A) $2.09
• B) $4.09
• C) $6.09
• D) $12.09

---

Definitions:

Rates of Growth

The rate at which a variable such as output, income, or population expands over a specific period of time, usually expressed as a percentage.

Unemployment

The situation in which individuals who are willing and able to work are unable to find employment.

Money Supply

The aggregate economic assets in monetary form at a specific period in an economy.

Demand for Goods and Services

The consumers' desire and willingness to pay for products or services at a given price point.