Binomial Pricing: Assume That the Stock of ABC, Inc

question 11

Multiple Choice

Binomial pricing: Assume that the stock of ABC, Inc., is currently trading for $16 and will either rise to $18 or fall to $12 in one year. The risk-free rate for one year is 1 percent. What is the value of a put option with a strike price of $10?

• A) $0
• B) $2.00
• C) $2.33
• D) $5.00

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Definitions:

Unwanted Takeovers

Attempts by one company to acquire control of another company without the consent of the latter's management.

Stockholders

Individuals or entities that own stock in a corporation, making them partial owners of the company and entitling them to a share of its profits.

Consolidation

The process in accounting and finance where the financial statements of a parent company and its subsidiaries are combined to form a single, comprehensive financial statement.

Proxy Contests

A situation where two or more parties vie to collect enough shareholder votes to win a corporate election, often related to changes in company management or strategy.