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Consider a Binomial World in Which the Current Stock Price

Question 1

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

Correct Answer:

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