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Corporate Finance · End Term · 10 May 2026 · January 2026 term · Set 1

Question 22: A stock currently trading at Rs 20 can either rise to Rs…

Question 22

+3 marksOne correct option

A stock currently trading at Rs 20 can either rise to Rs 25 or fall to Rs 16 in three months. The three-month risk-free rate is 2%. Using the risk-neutral approach, what is the risk-neutral probability that the stock price increases?

  1. A

    78.6%

  2. B

    60.0%

  3. C

    48.9%

  4. D

    43.1%

Show answer

Correct answer

  • C

    48.9%

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Question 22 of 35 in the IIT Madras BS Corporate Finance (Corporate Finance) End Term paper sat on 10 May 2026, in the January 2026 term (Corporate Finance 06 May 26). It carries 3 marks.

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