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You again observe a €100 price for a non- dividend- paying stock with the same inputs as the previous box. That is, the call option has one year to mature, the periodically compounded risk- free interest rate is 5.15%, the exercise price is €100, u = 1.35, and d = 0.74. The put option value will be closest to:

A. €12.00.
B. €12.10.
C. €12.20.

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The most correct statement about the binomial option pricing formula is that:

A. The discount rate to calculate the option price is the risk-free rate
B. The discount rate to calculate the option price is the risk-free rate plus a risk premium
C. The spot price is compounded at the risk-free rate to get the expected payoff

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Knowledge about the degree of risk aversion of investors is most likely needed for:

A. the pricing of assets, but not for the pricing of derivatives.
B. both the pricing of assets and of derivatives.
C. the pricing of derivatives, but not for the pricing of assets.

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The “up－move factor” in a binomial tree is best described as:

A. the probability that the variable increases in any period
B. one plus the percentage change in the variable in each period.
C. the increase in the value of the variable in the next period.
D. one minus the “down-move factor” for the binomial tree.

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A non-dividend paying stock is currently trading at USD 25. You are looking to find a no-arbitrage price for a 1-year American call using a two-step binomial tree model for which the stock can go up or down by 25%. The risk free rate is 10% and you believe that there is an equal chance of the stock price going up or down. What is the risk-neutral probability of the stock price going down in a single step?

A. 22.6%
B. 39.8%
C. 50.0%
D. 68.3%

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A. €12.00. B. €12.10. C. €12.20.

The most correct statement about the binomial option pricing formula is that:

Knowledge about the degree of risk aversion of investors is most likely needed for:

The “up－move factor” in a binomial tree is best described as:

A. €12.00.
B. €12.10.
C. €12.20.