Consider a Binomial World in Which the Current Stock Price

question 56

Multiple Choice

Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent.The risk-free rate is 4 percent.Assume a one-period world.Answer questions 12 through 15 about a call with an exercise price of 80.
-What would be the call's price if the stock goes up?

• A)3.60
• B)8.00
• C)5.71
• D)4.39
• E)none of the above

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Definitions:

Communication Efficiency

The effectiveness with which information is expressed and understood between parties, minimizing misunderstandings and maximizing clarity.

Noise

Unwanted or disruptive sounds or signals that interfere with the communication or processing of information.

Effective Communication

The intended meaning of the source and the perceived meaning of the receiver are identical.

Efficient Communication

The ability to convey information and ideas effectively and clearly with minimal waste of time and resources.