A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%
Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. Which of the following are true?
A. The parameters p and u are the same for both trees
B. The parameter p is the same for both trees but u is not
C. The parameter u is the same for both trees but p is not
D. None of the above
C
The formula for u is the same in the two cases so that the values of the index on its tree are the same as the values of the stock on its tree. However, in the formula for p, r is replaced by r−q.
You might also like to view...
After being accused of overcharging, Brian steps back and redirects the negotiation back to the issues that were initially being discussed. Brian is engaging in negotiation jujitsu.
Answer the following statement true (T) or false (F)
Depreciation expense on factory equipment is part of factory overhead cost
Indicate whether the statement is true or false
The courts look favorably on malicious prosecution lawsuits
Indicate whether the statement is true or false
Identify a true statement about equity theory.
A. A drawback of equity theory is that people are not motivated if their physiological and safety needs are met. B. It typically includes five factors, which are task identity, skill variety, task significance, feedback, and autonomy. C. A drawback of equity theory is that people are prone to overestimate their own contributions. D. It proposes that workers are not motivated if they do not have freedom and authority regarding their jobs.