Question: How many terminal payoffs are there in a 2-step binomial tree? O A. 3 OB. 4 OC. 6 OD. 8See the following binomial tree. Yellow

How many terminal payoffs are there in a 2-step binomial tree? O A. 3 OB. 4 OC. 6 OD. 8See the following binomial tree. Yellow (top) for stock price, green (middle) for European put option premium, and blue for American put option premium (bottom). 1.10291 0 0.98263 0 0 087547 |0 0.87547 0_ 078 l 00134 l0.78 0 0.02716 0.04507 | 069494 | 0.02716 0.69494 0.05506 0.07795 |0.61915 0.05506 0.12503 0.13085 0.55163 0.19837 0.19837 What is the gross return of stock if stock goes up? '1 .122 1.057 0.891 0.982 1.10291 0.98263 0 0.87547 0.87547 0.0134 0.78 0.0134 0.78 0.04365 0.02716 0.04507 0.69494 0.02716 0.69494 0.07508 0.05506 0.07795 0.61915 0.05506 0.12503 0.13085 0.55163 0.19837 0.19837 What is the gross return of stock if stock goes down? O A. 1.122 O B. 1.057 O C. 0.891 O D. 0.982\fGiven the maturity of an American put option 2 years, riskfree rate 10%, volatility of the stock 40%, current spot price of stock $50, strike price $50, what is the onestep risk neutral probability that stock price goes up considering a three-step binomial tree? A. 0.201 B. 0452 C. 0.910 D. 0523 8.3% 9.5% 8.8% Company BANK Company LIBOR X Y LIBOR LIBOR+1% The above is the cash flow chart of a swap. Which company has comparative advantage on fixed rate? O A. Company X O B. Company Y O C. bank O D. Neitherl A stock price is currently $25. It is known that at the end of two months it will be either $23 or $27. The risk-free interest rate is 10% per annum with continuous compounding. Suppose ST is the stock price at the end of two months. The derivative pays off ST*(ST-50) at T. Consider a portfolio consisting of long delta shares of stock and short 1 unit of derivative. What delta makes the portfolio risk-free? A. 100 B. 25 C. 1/25 D. 0.5 When volatility decreases with all else remaining the same, puts increase in value while calls decrease in value. True False The predetermined interest rate in an FRA is called a forward rate only when it makes an FRA a fair game. True False l Given the maturity of an American put option 2 years, riskfree rate 10%, volatility of the stock 40%, current spot price of stock $50, strike price $50, what is the value of option when stock price is 96.084 in step 2, considering a 3-step binomial tree? A. 6.291 B. 13.931 C. 10.204 D.O

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