hard · CFA Level I Derivatives
Nadir Components (NC) is currently trading at 50. In one period, the stock price is expected to either rise to 60 or fall to 40. The risk-free rate for the period is 3%. A one-period European call option on NC has a strike price of 52.
Using a one-period binomial model, the risk-neutral probability of an up-move (π) is closest to:
- 0.500
- 0.575
- 0.425
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