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Answer: Not provided in the text
The question involves calculating parameters for a binomial option pricing model. Given: - Risk-free rate (r) = 2% - Dividend yield (q) = 2% - Time step (Δt) = 1/12 - Volatility (σ) = 15% Calculations: - a = e^(r-q)Δt = e^((2%-2%)×1/12) = e^0 = 1.0 - u = e^(σ√Δt) = e^(15%×√(1/12)) = 1.044 - d = 0.958 - p = (a - d)/(u - d) = (1.0 - 0.958)/(1.044 - 0.958) = 0.4892 - 1 - p = 0.5108 The correct answer is C based on the solution provided.
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a = e^(r-q)Δt = e^((2%-2%)×1/12) = 1.0
u = e^(σ√Δt) = e^(15%×√(1/12)) = 1.044, d = 0.958
p = (a - d)/(u - d) = (1.0 - 0.958)/(1.044 - 0.958) = 0.4892;
1 - p = 0.5108
A
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B
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C
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D
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E
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F
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