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2. A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. A) The parameters p and u are the same for both trees B) The parameter p is the same for both trees but u is not C) The parameter u is the same for both trees but p is not D) None of the above

2. A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. A) The parameters p and u are the same for both trees B) The parameter p is the same for both trees but u is not C) The parameter u is the same for both trees but p is not D) None of the above

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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2. A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. A) The parameters p and u are the same for both trees B) The parameter p is the same for both trees but u is not C) The parameter u is the same for both trees but p is not D) None of the above
Transcribed Image Text:2. A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. A) The parameters p and u are the same for both trees B) The parameter p is the same for both trees but u is not C) The parameter u is the same for both trees but p is not D) None of the above
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