1. For a one-step binomial model the two possible expiry values of some derivative are $0 when the share price is $50, and $20 when the share price is $10. Over the life of the derivative the return on an investment is =1.25R=1.25. Which of the following could be true?

Group of answer choices

The derivative is a call with 0=20H0=20 and 1=0.5H1=0.5.

The derivative is a put with 0=20H0=20 and 1=0.5H1=0.5.

The derivative is a call with 0=20H0=20 and 1=0.5H1=0.5.

The derivative is a put with 0=20H0=20 and 1=0.5H1=0.5.

2.

In the CRR notation, a share has =15S=15, =1.2u=1.2 and =0.9d=0.9. What is the risk-neutral probability of the upstate when the return is 1.1?

Group of answer choices

1/3

1/2

1/4

3/4

2/3

3. Using the CoxRoss-Rubenstein notation, a share has =20S=20, =1.1u=1.1 and =0.8d=0.8. What are the possible values of this share after one time step?

Group of answer choices

$25 and $18.18

$24.20, $17.60 and $12.80

$22 and $16

$20