Assume a two-period world with a current share price of $21.00,an interest rate of 6.5% over the period,a price increase factor of 1.43 and a price decrease factor of 0.55.What are the possible end-of-period prices?

A) $ \$ 18.70 $ and $ \$ 8.71 $
B) $ \$ 21.25 $ and $ \$ 9.64 $
C) $ \$ 22.61 $ and $ \$ 10.78 $
D) $ \$ 30.03 $ and $ \$ 11.55 $

Question

Assume a two-period world with a current share price of $21.00,an interest rate of 6.5% over the period,a price increase factor of 1.43 and a price decrease factor of 0.55.What are the possible end-of-period prices?

A) $ \$ 18.70 $ and $ \$ 8.71 $
B) $ \$ 21.25 $ and $ \$ 9.64 $
C) $ \$ 22.61 $ and $ \$ 10.78 $
D) $ \$ 30.03 $ and $ \$ 11.55 $

Quizplus · Accepted Answer

Following example 16.1,we can compute the possible end-of-period prices as follows:

Assume a Two-Period World with a Current Share Price of $21.00,an