Consider a Binomial World in Which the Current Stock Price

question 23

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 down?

• A)8.00
• B)3.60
• C)0.00
• D)9.00
• E)none of the above

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