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Questions
Questions

BUSFIN 4229 SP2025 (4930) FINAL EXAM SP 25- Requires Respondus LockDown Browser

Single choice

In the binomial option pricing model, how is the asset price assumed to behave in each time period? 

Options
A.It remains constant until expiration
B.It adjusts continuously based on interest rate movements
C.It follows a normal distribution
D.It can move only up and down by a specified amount
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Standard Answer
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Approach Analysis
When evaluating how the binomial option pricing model assumes asset prices behave in each time period, one must compare each statement to the standard binomial framework. Option 1: 'It remains constant until expiration' This is inconsistent with the binomial model, which envisions discrete potential mo......Login to view full explanation

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Question textThe following information refers to parts A-B below, select the right answer from the drop-down menu. Consider a three period binomial time-state model in which there are two securities, a bond and a stock. The bond price increases [math: 2%]2\% of its prior value in every period and its initial price is 1. The payments made by the stock are shown in the binomial tree below: The [math: Patom]\mathbf {P_{atom}} vector represents the atomic (time-state) prices of elementary payment for states [math: g], [math: b], [math: gg], [math: gb], [math: bg] and [math: bb], respectively, rounded to 4 decimal digits. [math: Patom=(0.3922,0.5882,0.1538,0.2307,0.2307,?)] \mathbf {P_{atom}}=(0.3922, 0.5882, 0.1538, 0.2307, 0.2307, ?) A) The discount factor of period 1 is: Answer 1 Question 7[select: , 0.30, 0.83, 0.98, 1.94, none of the above] B) The atomic security price of state [math: bb] is equal to: Answer 2 Question 7[select: , 0.1560, 0.2360, 0.2560, 0.3460, 0.4060]

Question textThe following information refers to parts A-B below, select the right answer from the drop-down menu. Consider a three period binomial time-state model in which there are two securities, a bond and a stock. The bond price increases [math: 2%]2\% of its prior value in every period and its initial price is 1. The payments made by the stock are shown in the binomial tree below: The [math: Patom]\mathbf {P_{atom}} vector represents the atomic (time-state) prices of elementary payment for states [math: g], [math: b], [math: gg], [math: gb], [math: bg] and [math: bb], respectively, rounded to 4 decimal digits. [math: Patom=(0.3922,0.5882,0.1538,0.2307,0.2307,?)] \mathbf {P_{atom}}=(0.3922, 0.5882, 0.1538, 0.2307, 0.2307, ?) A) The discount factor of period 1 is: Answer 1 Question 5[select: , 0.30, 0.83, 0.98, 1.94, none of the above] B) The atomic security price of state [math: bb] is equal to: Answer 2 Question 5[select: , 0.1560, 0.2360, 0.2560, 0.3460, 0.4060]

Question textThe following information refers to parts A-B below, select the right answer from the drop-down menu. Consider a three period binomial time-state model in which there are two securities, a bond and a stock. The bond price increases [math: 2%]2\% of its prior value in every period and its initial price is 1. The payments made by the stock are shown in the binomial tree below: The [math: Patom]\mathbf {P_{atom}} vector represents the atomic (time-state) prices of elementary payment for states [math: g], [math: b], [math: gg], [math: gb], [math: bg] and [math: bb], respectively, rounded to 4 decimal digits. [math: Patom=(0.3922,0.5882,0.1538,0.2307,0.2307,?)] \mathbf {P_{atom}}=(0.3922, 0.5882, 0.1538, 0.2307, 0.2307, ?) A) The discount factor of period 1 is: Answer 1 Question 3[select: , 0.30, 0.83, 0.98, 1.94, none of the above] B) The atomic security price of state [math: bb] is equal to: Answer 2 Question 3[select: , 0.1560, 0.2360, 0.2560, 0.3460, 0.4060]

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