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Question:

An analyst using a one-period binomial model calculates a probability-weighted average of an option’s values following an up-move or a down-move. According to this model, this average is most likely:

A
greater than the option’s value today.

Explaination

The probability-weighted average calculated by the analyst is the options value after one period. To estimate the options value today, this result must be discounted by one period.

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