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Calculate the price of a derivative

 
 
Lisanne
 
Reply Thu 12 Nov, 2020 05:29 am
The current price of LC Corporation stock is $60. In each of the next two years, this stock price can either go up by 10% or go down by 5%. LC stock pays no dividends. The one-year risk-free interest rate is 6% and will remain constant.

Compute the price of a derivative that pays $10 if the stock goes up twice, $5 if it goes down twice and $50 otherwise.

Group of answer choices
a) 22.51
b) 35.34
c) 25.30
d) 23.86
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Type: Question • Score: 0 • Views: 165 • Replies: 2
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Sturgis
 
  1  
Reply Thu 12 Nov, 2020 02:41 pm
@Lisanne,
I'd go with option d.
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knaivete
 
  1  
Reply Thu 12 Nov, 2020 06:56 pm
@Lisanne,
You need to read your study notes to answer all of your questions on derivative pricing.
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