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

question 22

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 an investment of a dollar at the risk-free rate returns $1.001668 after one month, and the 98-strike put option is trading at $2, how much arbitrage profit can you make in present value terms?

• A) $1.93
• B) $2.92
• C) $3.93
• D) $8.00

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Definitions:

Processes Visuals

The method by which visual information is interpreted and understood, involving perception, analysis, and integration of visual data.

Processes Words

The action of handling or managing words, often referring to the cognitive process involved in reading or writing.

Drafting

the preliminary stage of writing, where ideas are developed and organized into a structured document.

Visuals

Images, diagrams, or other visual aids used to complement or illustrate information.