The current price of Kinston Corporation stock is $10. In each of the next two years, this stock price can either go up by $3.00 or go down by $2.00. Kinston stock pays no dividends. The one year risk-free interest rate is 5% and will remain constant. 1) Using the binomial pricing model, calculate the price of a two-year call option on Kinston stock with a strike price of $9. A) $2.00 B) $2.54 C) $2.40 D) $215
The current price of Kinston Corporation stock is $10. In each of the next two years, this stock price can either go up by $3.00 or go down by $2.00. Kinston stock pays no dividends. The one year risk-free interest rate is 5% and will remain constant. 1) Using the binomial pricing model, calculate the price of a two-year call option on Kinston stock with a strike price of $9. A) $2.00 B) $2.54 C) $2.40 D) $215
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter5: Financial Options
Section: Chapter Questions
Problem 6P: Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The...
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