Chapter 03 · Section 3.1

Binomial Pricing Question 4

Again let us use the preceeding example, but this time observe it across 3 periods. Stock XYZ costs 110. The stock can increase in value (upward multiplication factor: 1.3=143/110) or decrease in value (downward multiplication factor: 0.9=99/110).

Consider these multiplication factors and assume that the stock increases for a second time. What will be the value of stock XYZ at the end of the second period?

a) -99999/0
b) -128.70
c) -89.10
d) -0/185.89
• e) -185.91/99999
  No. No. The price of the stock is lower than @INPED.
  f) +185.90

(Click here for help)