Question

In: Finance

The price of oil is currently at $24 but you expect it to either increase by...

The price of oil is currently at $24 but you expect it to either increase by 18 percent or decrease by 7 percent over the next 6 months. The 6-month risk-free rate of interest is 1.98 percent. What is the risk-neutral probability that the price will increase?

Group of answer choices

35.92%

32.47%

37.94%

38.06%

36.03%

2

Executive stock options generally have all of the following characteristics except:

Group of answer choices

putting executive pay at risk.

providing tax efficiency.

aligning executive goals with shareholder goals.

increasing executive base salaries.

linking executive compensation to performance.

Expert Solution

Probability = (1 + rate ) - u / (d - u )

= (1 +1.98%) - .93 / ( 1.18 - .93)

=35.92%

Q2 putting executive pay at risk.

Executive options only give option and not obligation to the holder so no risk.

jeff jeffy answered 2 years ago

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