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Question 1 0/1 pts TELO stock is expected to increase or decrease $10 from its current price of $80 in the next year. If the 1-year risk-free rate is 296, what is the price of a $75 strike price call worth today as valued by a one-step binomial model? $2.84 $5.68 Correct Answer $8.53 You Answered $%14.71 incorrect Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2.00, a dividend in year 2 of $3.00, and a dividend in year 3 of $4.00. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%, using the multistage DDM, the stock should be worthtoday. $63.80 $65.13 Correct Answer $67.95 You Answered $85.60 4.001+07)85.60 12-.07 ,-2.00(.893)+ 3.00(.797)+(4.00 + 856oX.712)-67.95 The bank you work for has sold a 6-year annually-compounded CD for $10,000 at 5.5%. The bank has chosen to back this CD with a 7-year, 5.5% annual- coupon bond that is trading at par value of $1,000. We want to prove that the liability is fully funded if bond market rates go to 6.5%. How many of these bonds will the bank buy? What is the liability that needs to be funded? For the exam, be sure you can then go on to prove that the liability is in fact fully funded by selling the bond at CD maturity and reinvesting the coupon income along the way. Correct Answer 10: $13,788.43 1,000; $10,000 You Answered 100: $13,300 1, $550 See the instructor notes for the identical example worked out