#7: Consider a European call option on a stock, with a $23 strike and 1-year to expiration. The stock has a continuous dividend yield of 0%, and its current price is $67. Suppose the volatility of the stock is 20%. The continuously compounded risk-free interest rate is 9% and the continuously compounded return is a = 8%. Use a one-period binomial tree to calculate the following: (a) The payoff for up movement. (b) The payoff for down movement. (c) The corresponding replicating portfolio: The number of shares. (d) The corresponding replicating portfolio: The lent/borrowed amount. (e) The option premium. (f) The true probability of the stock going up. (g) The actual expected payoff of the option. (h) The appropriate per-period discount rate 7. (A) 70.54 (B) 66.54 (C) 68.54 (D) 67.54 (E) 69.54 #7(a): Select V 1 Part (a) choices. (A) 40.02 (B) 39.02 (C) 38.02 (D) 36.02 (E) 37.02 #7(b): Select 1 Part (b) choices. (A) -2.00 (B) 0.00 (C) -3.00 (D) -1.00 (E) 1.00 #70): Select 1 Part (c) choices. (A)-22.02 (B) -21.02 (C) -24.02 (D) -25.02 (E)-23.02 #7(d): Select 1 Part (d) choices. (A) 44.98 (B) 46.98 (C) 45.98 (D) 47.98 (E) 43.98 #7(e): Select 1 Part (e) choices. (A) 0.40 (B) 0.42 (C) 0.41 (D) 0.43 (E) 0.44 #7(f): Select Part (f) choices. (A) 46.58 (B) 48.58 (C) 45.58 (D) 47.58 (E) 49.58 #7(9): Select 1 Part (9) choices. (A) 0.11 (B) 0.09 (C) 0.08 (D) 0.12 (E) 0.10 #7(h): Select 1 Part (h) choices. #7: Consider a European call option on a stock, with a $23 strike and 1-year to expiration. The stock has a continuous dividend yield of 0%, and its current price is $67. Suppose the volatility of the stock is 20%. The continuously compounded risk-free interest rate is 9% and the continuously compounded return is a = 8%. Use a one-period binomial tree to calculate the following: (a) The payoff for up movement. (b) The payoff for down movement. (c) The corresponding replicating portfolio: The number of shares. (d) The corresponding replicating portfolio: The lent/borrowed amount. (e) The option premium. (f) The true probability of the stock going up. (g) The actual expected payoff of the option. (h) The appropriate per-period discount rate 7. (A) 70.54 (B) 66.54 (C) 68.54 (D) 67.54 (E) 69.54 #7(a): Select V 1 Part (a) choices. (A) 40.02 (B) 39.02 (C) 38.02 (D) 36.02 (E) 37.02 #7(b): Select 1 Part (b) choices. (A) -2.00 (B) 0.00 (C) -3.00 (D) -1.00 (E) 1.00 #70): Select 1 Part (c) choices. (A)-22.02 (B) -21.02 (C) -24.02 (D) -25.02 (E)-23.02 #7(d): Select 1 Part (d) choices. (A) 44.98 (B) 46.98 (C) 45.98 (D) 47.98 (E) 43.98 #7(e): Select 1 Part (e) choices. (A) 0.40 (B) 0.42 (C) 0.41 (D) 0.43 (E) 0.44 #7(f): Select Part (f) choices. (A) 46.58 (B) 48.58 (C) 45.58 (D) 47.58 (E) 49.58 #7(9): Select 1 Part (9) choices. (A) 0.11 (B) 0.09 (C) 0.08 (D) 0.12 (E) 0.10 #7(h): Select 1 Part (h) choices