Binomial Pricing: Consider a Call Option and a Put Option

question 27

Multiple Choice

Binomial pricing: Consider a call option and a put option both written on C72 shares. Both options have a strike price of $20 and expire in one year. The shares of C72 are currently selling for $20. In one month the shares will be at either $24 or $18. The risk-free rate is 0 per cent. Which is worth more, the put option or the call option?

• A) The put option is worth more.
• B) The call option is worth more.
• C) They are worth the same.
• D) There is not enough information.

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Definitions:

Collar Cells

Also known as choanocytes, are flagellated cells that line the interior of asconoid sponges and are used for feeding by generating water flow and filtering food particles.

Amebocytes

Cells found in the bloodstream of invertebrates that move like amoebas, involved in various functions including distributing nutrients and forming immune responses.

Attachment

The emotional bond that develops between a child and a caregiver, influencing personal development.

Feeding

The process by which organisms obtain and consume food to sustain life.