Question: 14. A binomial tree with one-month time steps is used to value an index option. The interest rate is 3% per annum and the dividend

14. A binomial tree with one-month time steps is used to value an index option. The interest rate is 3% per annum and the dividend yield is 1% per annum. The volatility of the index is 16%. What is the probability of an up movement? A. 0.4704 B. 0.5065 C. 0.5592 D. 0.5833

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Suppose that the TAIEX futures contracts with 6 months to maturity are used to hedge of a portfolio over the next 4 months. Considering the following situation: Current price of TAIEX =15,000 points...

Explain clearly. Problem 7.11. A financial institution has entered into a 10-year currency swap with company Y. Under the terms of the swap, the financial institution receives interest at 3% per...

1 Forward and Futures Prices Problem 1.1. The risk-free rate of interest is 3% per annum with continuous compounding, and the dividend yield on a stock index is 1.8% per annum. The current value of...

Assuming a binomial tree of 150 steps, 1 year to maturity, and a domestic risk-free rate of 5% per annum: Assume the current stock price is $100 and the stock has a per annum volatility of 30%. The...

Assuming a binomial tree of 150 steps, 1 year to maturity, and a domestic risk-free rate of 5% per annum: a. Assume the current stock price is $100 and the stock has a per annum volatility of 30%....

57. Which of the following could be considered a form of perpetuity? a. the college tuition payments that students make for four years. b. a 20-year corporate bond c. a university scholarship...

Review the annual reports for PepsiCo, Inc. and the Coca-Cola Company in Appendixes A & B, especially the Consolidated Statements of income and the Balance Sheets on pp. A4, A6, B1, & B2 of Financial...

need help on checkpoint accounting 1. CheckPoint: Ratio, Vertical, and Horizontal Analyses The calculations you perform for this CheckPoint form the basis of your analysis of your capstone project....

QUESTION 1 What is an optimal portfolio? a. An envelope portfolio which does not have any negative weights b. An envelope portfolio which has the constant c set equal to the risk free rate c. An...

Exhibit 7.17 includes a footnote excerpt from the annual report of The Coca-Cola Company for 2004. The beverage company offers stock options to key employees under plans approved by stockholders....

Kwak Motors, Inc. pays a $1.77 preferred dividend every quarter and will maintain this policy forever. What price should you pay for one share of preferred stock if you want an annual return of 2.5%...

Lisa Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records. June 30 Bank Reconciliation Balance per bank $22,400 Add:...

In which touch event interface does the state of the user's point ( s ) of contact with the touchscreen surface change? TouchList TouchEvent Touchpoint Touch Listen If you want to store the string...

Simulation is a trial - and - error approach to problem solving. True False

=+Differentiate the key characteristics of a personal brand

1. What are the benefi ts of studying communication?

=+Discuss the key benefits and challenges of a personal brand