Thu 12 Nov, 2020 05:30 am
The current price of LC Corporation stock is $20. In each of the next three years, this stock price can either go up by 12% or go down by 4%. 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 2u where u is the number of times that the stock goes up
Note: Risk-neutral probabilities are constant in this case, you just need to compute them in one period.
Group of answer choices