Question
Stock price is $100 now. In one period, it can go up to $125 or down to $90. Interest rate per period is 5%. A
Stock price is $100 now. In one period, it can go up to $125 or down to $90. Interest rate per period is 5%. A call option expiring at the end of the period has a strike price of X = 115. Which of the data above is inconsistent with the binomial model?
a. If the up price is $125 and the down price is $90, then the interest rate cannot be 5%
b. If the up price is $125, then the down price cannot be $90
c. If the option strike price is $115, then the stock price today cannot be $100
d. If the up price is $125, then the option strike price cannot be $115
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