Consider a Binomial World in Which the Current Stock Price

question 34

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 is the theoretical value of the call?

• A)8.00
• B)4.39
• C)5.15
• D)5.36
• E)none of the above