A stock is currently trading at $100. In each month, the stock will either increase in price by a factor of $u = 1.10$ or fall by a factor of $d = 0.90$ . The risk-free rate of interest per month is 0.1668% in simple terms, i.e., an investment of $1 at the risk-free rate returns $1.001668 after one month. What is
A) $7.20 and $5.41, respectively.
B)$7.20 and $5.08, respectively.
C) $5.08 and $7.70, respectively.
D) $5.41 and $7.20, respectively.

Question

A stock is currently trading at $100. In each month, the stock will either increase in price by a factor of $u = 1.10$ or fall by a factor of $d = 0.90$ . The risk-free rate of interest per month is 0.1668% in simple terms, i.e., an investment of $1 at the risk-free rate returns $1.001668 after one month. What is
A) $7.20 and $5.41, respectively. 
B)$7.20 and $5.08, respectively.
C) $5.08 and $7.70, respectively.
D) $5.41 and $7.20, respectively.

Quizplus · Accepted Answer

The Answer is B

A Stock Is Currently Trading at $100 u=1.10u = 1.10u=1.10 Or Fall by a Factor Of

A Stock Is Currently Trading at $100 $u = 1.10$ Or Fall by a Factor Of