Consider two-period binomial model

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1. Consider a two-period binomial model, where each period is 6 months. Assume the stock price is $75.00, = 0.35, and r = 0.05. An American call option with a strike price of $80 would be exercised early at what dividend yield?

a. 5.0%

b. 7.0%

c. 9.0%

d. Never exercise early

2. Anakin puts $700 per year (starting today) into a retirement account. The account pays 4% effective annual interest. How much will Anakin have in this account immediately after the deposit 4 years from today is made?

a. $2,700

b. $3,800

c. $3,000

d. $3,150

e. $4,450

3. Consider a one-period binomial model of 12 months. Assume the stock price is $54.00, = 0.25, r = 0.04 and the exercise price of a call option is $55. What is the forecasted price of the stock given a downward movement during the year?

a. $ 45.28

b. $43.77

c. $48.98

d. $51.84

Reference no: EM132053877

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