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Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.
Derivatives
Valuing a Derivative Using a One-Period Binomial Model practice questions
Valuing a Derivative Using a One-Period Binomial Model is part of CFA Level I Derivatives. Derivatives questions cover forwards, futures, swaps, options, replication logic, payoffs, and risk-transfer mechanics. Use this page to review the controlling ideas, then work through 4 questions with answer explanations and common traps.
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Derivatives
Valuing a Derivative Using a One-Period Binomial Model
In a one-period binomial model, the weights applied to the up-move and down-move payoffs when valuing an option are most accurately described as:
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Valuing a Derivative Using a One-Period Binomial Model
In a one-period binomial model, a stock's price can move up by a factor of 1.30 or down by a factor of 0.90 over the period, and the risk-free rate for the period is 4.0%. The risk-neutral probability of an up move is closest to:
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Valuing a Derivative Using a One-Period Binomial Model
A stock trades at USD 100.00 and in one period will move to either USD 115.00 or USD 90.00. A one-period European call option on the stock has an exercise price of USD 100.00. The hedge ratio, the number of shares of stock to hold for each call option written so that the hedged portfolio is riskless, is closest to:
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Valuing a Derivative Using a One-Period Binomial Model
A stock trades at USD 80.00. Over one period, its price will either rise by 25% or fall by 20%. The risk-free rate for the period is 5.0%. A one-period European put option on the stock has an exercise price of USD 85.00. The value of the put option today is closest to:
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