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A. Most of the Chinese like playing badminton.
B. The game“badminton”was named after an Englishman.
C. Badminton came to the world sports stage in ancient times.
D. Wang, like John, is quite good at playing badminton.
E. Wang began to play badminton in primary school.
F. Americans like badminton, too.
G. Now badminton is played both for fun and for competition in America.
H. Wang’s father contributed a lot to the training of American badminton players.

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When valuing a call option using the binomial model, an increase in the probability that the underlying will go up, most likely implies that the current price of the call option:

A. remains unchanged.
B. decreases.
C. increases.

Which of the following terms directly represents the volatility of the underlying in the binomial model?

A. The standard deviation of the underlying
B. The difference between the up and down factors
C. The ratio of the underlying value to the exercise price.

To determine the price of an option today, the binomial model requires:

A. selling one put and buying one offsetting call.
B. buying one unit of the underlying and selling one matching call.
C. using the risk-free rate to determine the required number of units of the underlying.

Assume a call option’s strike price is initially equal to the price of its underlying asset. Based on the binomial model, if the volatility of the underlying decreases, the lower of the two potential payoff values of the hedge portfolio:

A. decreases.
B. remains the same.
C. increases.

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