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

question 16

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, how many 100-strike one-month call options and how many units of the stock will be needed to be combined to obtain a riskless $1 portfolio?

• A) Long 0.02 calls and long 0.01 shares.
• B) Long 0.01 calls and long 0.02 shares.
• C) Short 0.01 calls and short 0.02 shares.
• D) Short 0.02 calls and long 0.01 shares.

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