Now extend the one-period binomial model to a two-period world.Answer questions 16 through 18.
-What is the value of the call if the stock goes up,then down?
A)0.96
B)16.80
C)8.00
D)0.00
E)none of the above

Question

Quizplus · Accepted Answer

The value of the call if the stock goes up, then down is 0.96. This is because the call option gives the holder the right to buy the stock at a certain price, and if the stock goes up, then down, the holder can buy the stock at a lower price than the market price, and then sell it at a higher price, making a profit.

Now Extend the One-Period Binomial Model to a Two-Period World