Binomial Pricing: You Own a Share of Ordinary Shares in Good

question 45

Multiple Choice

Binomial pricing: You own a share of ordinary shares in Good Health Foods, which are currently trading for $18 and will either rise to $30 or fall to $12 in one year. The risk-free rate for one year is 0 per cent. You also own an American put option on the shares with a strike price of $20, which expires in one year. What is the value of the put option, and what would be the net pay-off from exercising the option now?

• A) Option Value: $3.33 - Net Pay-off $2
• B) Option Value: $3.33 - Net Pay-off $6
• C) Option Value: $5.33 - Net Pay-off $2
• D) Option Value: $5.33 - Net Pay-off $6

---

Definitions:

Productivity

A measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs.

Labour Hour

The unit of measure representing one hour of work performed by an employee, often used to track productivity and labor costs.

Signature Requirement

A stipulation that a document must be signed by an authorized party to validate its authenticity, enforceability, or to meet regulatory compliance.

Labour Hour

A unit of measure representing an hour of work performed by an employee, used for calculating labor costs or productivity.