Binomial Pricing: You Are Fortunate Enough to Own a Put

question 8

Multiple Choice

Binomial pricing: You are fortunate enough to own a put option with a strike price of $50 on the stock of ABC, Inc. The current stock price is $4. When the option expires, you expect the stock price to be either $2 or $5. The risk-free rate of interest is zero. What is the value of your option?

• A) 0
• B) 45
• C) 46
• D) 48

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Definitions:

High Price

A level of cost that is above average or expected, often indicating scarcity or premium quality.

Low Price

A cost for goods or services that is relatively minimal compared to other options available in the market.

Dominant Strategy

In game theory, a strategy that is best for a player regardless of the strategies chosen by other players.

Davy Crockett Figurines

Small modeled representations or statues of Davy Crockett, the 19th-century American folk hero, soldier, and politician, often collected as memorabilia or toys.