Use the Following Data for a Single-Period Binomial Model to Answer

Multiple Choice

Use the following data for a single-period binomial model to answer the questions that follow.
- The stock's price S is $50.After three months,it either goes up by the factor U = 1.16038286 or it goes down by the factor D = 0.85963276.
- Options mature after T =0 0.25 years.
- The continuously compounded risk-free interest rate r is 4 percent per year.
-Given the above data,consider an exotic option whose payoff at expiration is given by the square root of the stock price less the strike price (K = $6) if it has a positive value,zero otherwise,that is: max[ $\surd$ S(1) - 6,0].
The value of this exotic option is given by:

A) $0.55
B) $0.89
C) $1.08
D) $1.55
E) None of these answers are correct.