Binomial Pricing: Assume That the Stock of ABC, Inc

question 104

Multiple Choice

Binomial pricing: Assume that the stock of ABC, Inc., is currently trading for $22 and will either rise to $31 or fall to $18 in one year. The risk-free rate for one year is 0 percent. What is the value of a put option with a strike price of $25?

• A) $0
• B) $1.85
• C) $3.00
• D) $4.85

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Definitions:

Ending Inventory

Ending inventory is the total value of all inventory, including raw materials, work-in-progress, and finished goods, that a company has at the end of its fiscal period.

Inventory Method

An inventory method is an accounting approach used to value and manage a company's stock of goods.

Lower Cost

A strategy or situation where expenses are reduced, often achieved through efficient operations, bulk purchasing, or other methods to decrease the cost base.

FIFO Inventory

An inventory valuation method that assumes the first items placed in inventory are the first sold, prioritizing older stock for cost of goods sold.