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Corporate Finance · End Term · 13 Apr 2025 · January 2025 term

Question 33: A stock is trading at Rs 100 today. In 6 months, the sto…

Question 33

+4 marksOne or more correct options

A stock is trading at Rs 100 today. In 6 months, the stock price can either increase to Rs 120 or decrease to Rs 90. The six-month risk-free rate is 2%. A six-month call option has an exercise price of Rs 110. Select the correct statements based on the given information.

Select all that apply.

  1. A

    The risk-neutral probability that stock price increases is 40%.

  2. B

    The risk-neutral probability that stock price increases is 60%.

  3. C

    According to risk-neutral approach, the price of call option is Rs 3.92.

  4. D

    According to risk neutral approach, the price of call option is Rs 5.88.

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Correct answers

  • A

    The risk-neutral probability that stock price increases is 40%.

  • C

    According to risk-neutral approach, the price of call option is Rs 3.92.

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Question 33 of 35 in the IIT Madras BS Corporate Finance (Corporate Finance) End Term paper sat on 13 Apr 2025, in the January 2025 term (IIT M IMPROVEMENT AN EXAM QIM3 13 Apr 2025). It carries 4 marks.

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