What is risk-neutral probability of stock finishing in money

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Reference no: EM131529239

1. A stock is currently trading at $100. In each one-month period of a binomial tree, the stock will either increase in price by a factor of u = 1.05 or fall by a factor of d = 0.90. The risk-free rate per period of the binomial tree is 0.1668%, i.e., an investment of a dollar at the risk-free rate returns $1.001668 after one period. What is the risk-neutral probability of the stock finishing in the money on a 100-strike, two-month call option?

(a) 0.46

(b) 0.50

(d) 0.90

2. A stock is currently trading at $100. In each one-month period of a binomial tree, the stock will either increase in price by a factor of u = 1.05 or fall by a factor of d = 0.90. The risk-free rate per period of the binomial tree is 0.1668%, i.e., an investment of a dollar at the risk-free rate returns $1.001668 after one period. What is the risk-neutral probability of the stock finishing in the money on a 100-strike, two-month call option?

(a) 0.46

(b) 0.50

(d) 0.90

Reference no: EM131529239

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