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  3. 1. in the general pricing formula, over n time ste

1. In the general pricing formula, over N time steps, what happens if the risk...

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Finance

1. In the general pricing formula, over N time steps, what happens if the risk neutral probability is very close to zero.

Group of answer choices

The underlying asset will be very likely to increase in value.

The underlying asset will be very likely to increase in value.

The derivative will be very likely to decrease in value.

The underlying asset will be very likely to decrease in value.

2. A European call has expiry values (2,0)=$0, (2,1)=$0and (2,2)=$4. Under no arbitrage assumptions with return >1, what is a possible value for the premium (0,0)?

Group of answer choices

$1

$4.50

All three choices are possible.

$0

3.Using CoxRossRubenstein notation with =$12, =1.2 and =0.9, what is the largest and smallest underlying asset price for a three-step model?

Group of answer choices

$20.736 and $8.748.

$24.8832 and $7.8732.

$14.40 and $10.80.

$17.28 and $9.72.

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