Home › CA Final › strategicfinancialmanagement › Derivatives Analysis and Valuation › Binomial model: S = Rs 100, u = 1.2, d = 0.9, r …
Binomial model: S = Rs 100, u = 1.2, d = 0.9, r = 5% (1 period), K = 105. Risk-neutral probability of up state equals:
A0.533
B0.500
C0.467
D0.600
Answer & Solution
Correct answer: A. 0.533
1. Identify what the question asks: this concept maps to binomialprob (§7.1).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (A).
_Source: ICAI BoS CA Final Paper 2, Ch 9 "Derivatives Analysis and Valuation"_
Related questions
An out-of-the-money put with strike 100 and spot 110 has intrinsic value equal to:Theta of a long option position is generally:Cost of carry model: forward price F = S · (1 + r − y) · T (simple form) where y is divideAn investor enters a long straddle expecting:A bull call spread is created by:Hedging a long stock position with a long put creates a payoff equivalent to:A trader writes 10 ATM calls at premium Rs 8 each (lot 100). If underlying ends at strike Continuing the prior question, one-period call value (undiscounted) equals weighted payoff