Exam 10: Binomial Option Pricing

Assume the following data on a 6-month put option, using 3-month intervals as the time period. K = $40.00, S = $37.90, r = 5.0%, = .35. What is the binomial option price?

Free

(Multiple Choice)

4.7/5

(33)

Question 1

Correct Answer:

Verified

Using a binomial tree explanation, explain the situation in which an American option would alter the pricing of an option.

Free

(Essay)

4.7/5

(39)

Question 2

Correct Answer:

Verified

The value of an American option at a node is the maximum of its intrinsic value or the discounted value of the subsequent nodes. Early exercise permits the realization of the intrinsic value, should it be the higher number. European options may not consider this potential gain.

For a specific futures option, given d = .813 and u = 1.367, what is the risk neutral probability of an up move in the price of the option?

Free

(Multiple Choice)

4.8/5

(39)

Question 3

Correct Answer:

Verified

A stock is selling for $53.20. Interest rates are 6.0% and the returns on the stock have a standard deviation of 24.0%. What is the forecasted up movement in the stock over a 6- month interval?

(Multiple Choice)

4.8/5

(40)

Question 4

For an option trading in the money, what is the likely impact on the binomial option price as the number of binomial steps is increased?

(Multiple Choice)

4.9/5

(39)

Question 5

Using a binomial tree, what is the price of a $40 strike 6-month put option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, σ = 0.35

(Multiple Choice)

4.7/5

(32)

Question 6

Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month put option, using 3-month intervals as the time period. K = $40.00, S = $37.90, r = 5.0%, σ = 0.35

(Essay)

4.9/5

(36)

Question 7

In the case of a 1-year option, the current stock price is $52 per share. If the stock price has an equal chance of ending the year at either $58 or $45, what is the △ given an interest rate of 6.0% and an exercise price of $50?

(Multiple Choice)

4.9/5

(42)

Question 8

Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $40, S = $37.90, r = 5.0%, σ = 0.35

(Essay)

4.7/5

(37)

Question 9

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $70, S = $68.50, r = 6.0%, = .32. What is the highest possible stock price associated with this data and the binomial pricing model?

(Multiple Choice)

4.9/5

(35)

Question 10

A stock is selling for $68.50. Interest rates are 6.0% and the returns on the stock have a standard deviation of 32.0%. What is the forecasted price of the stock using 3-month periods at S_uudu?

(Multiple Choice)

4.8/5

(30)

Question 11

What is the binomial option price assuming the following data on a 6-month call option, using 3-month intervals as the time period? K = $40, S = $37.90, r = 5.0%, = .35

(Multiple Choice)

4.9/5

(34)

Question 12

A stock is selling for $53.20. Interest rates are 6.0% and the returns on the stock have a standard deviation of 24.0%. What is the forecasted up movement in the stock over 6 months, assuming two periods of 3 months each?

(Multiple Choice)

4.8/5

(39)

Question 13

Using a binomial tree, what is the price of a $40 strike 6-month call option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, σ = 0.35

(Multiple Choice)

4.8/5

(29)

Question 14

A stock is currently selling for $22.00 per share. Ignoring interest, determine the intrinsic value of a call option should there exist equally probable stock prices of $25.00 and $23.00.

(Multiple Choice)

4.8/5

(37)

Question 15

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $50, S = $48, r = 4.0%, = .27. What is the highest expected stock price after 3 months according to the binomial model?

(Multiple Choice)

4.8/5

(33)

Question 16

Which number of binomial periods is most likely to produce the most accurate price?

(Multiple Choice)

4.8/5

(29)

Question 17

A stock is selling for $41.60. The strike price on a call, maturing in 6 months, is $45. The possible stock prices at the end of 6 months are $35.00 and $49.00. Interest rates are 5.0%. Given an under-priced option, what are the short sale proceeds in an arbitrage strategy?

(Multiple Choice)

4.8/5

(40)

Question 18

Explain the impact a constant dividend yield would have on the price of a call option.

(Essay)

4.9/5

(42)

Question 19

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $50, S = $48, r = 4.0%, = .27. What is the risk neutral probability of an up move in the stock price?

(Multiple Choice)

4.8/5

(39)

Question 20

Showing 1 - 20 of 25

Assume the following data on a 6-month put option, using 3-month intervals as the time period. K = $40.00, S = $37.90, r = 5.0%, = .35. What is the binomial option price?

Using a binomial tree explanation, explain the situation in which an American option would alter the pricing of an option.

For a specific futures option, given d = .813 and u = 1.367, what is the risk neutral probability of an up move in the price of the option?

A stock is selling for $53.20. Interest rates are 6.0% and the returns on the stock have a standard deviation of 24.0%. What is the forecasted up movement in the stock over a 6- month interval?

For an option trading in the money, what is the likely impact on the binomial option price as the number of binomial steps is increased?

Using a binomial tree, what is the price of a $40 strike 6-month put option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, σ = 0.35

Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month put option, using 3-month intervals as the time period. K = $40.00, S = $37.90, r = 5.0%, σ = 0.35

In the case of a 1-year option, the current stock price is $52 per share. If the stock price has an equal chance of ending the year at either $58 or $45, what is the △ given an interest rate of 6.0% and an exercise price of $50?

Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $40, S = $37.90, r = 5.0%, σ = 0.35

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $70, S = $68.50, r = 6.0%, = .32. What is the highest possible stock price associated with this data and the binomial pricing model?

A stock is selling for $68.50. Interest rates are 6.0% and the returns on the stock have a standard deviation of 32.0%. What is the forecasted price of the stock using 3-month periods at S_uudu?

What is the binomial option price assuming the following data on a 6-month call option, using 3-month intervals as the time period? K = $40, S = $37.90, r = 5.0%, = .35

A stock is selling for $53.20. Interest rates are 6.0% and the returns on the stock have a standard deviation of 24.0%. What is the forecasted up movement in the stock over 6 months, assuming two periods of 3 months each?

Using a binomial tree, what is the price of a $40 strike 6-month call option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, σ = 0.35

A stock is currently selling for $22.00 per share. Ignoring interest, determine the intrinsic value of a call option should there exist equally probable stock prices of $25.00 and $23.00.

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $50, S = $48, r = 4.0%, = .27. What is the highest expected stock price after 3 months according to the binomial model?

Which number of binomial periods is most likely to produce the most accurate price?

A stock is selling for $41.60. The strike price on a call, maturing in 6 months, is $45. The possible stock prices at the end of 6 months are $35.00 and $49.00. Interest rates are 5.0%. Given an under-priced option, what are the short sale proceeds in an arbitrage strategy?

Explain the impact a constant dividend yield would have on the price of a call option.

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $50, S = $48, r = 4.0%, = .27. What is the risk neutral probability of an up move in the stock price?

Introduction to Derivatives

An Introduction to Forwards and Options

Insurance, Collars, and Other Strategies

Introduction to Risk Management

Financial Forwards and Futures

The Wide World of Futures Contracts

Interest Rates Forwards and Futures

Swaps

Parity and Other Option Relationships

The Black-Scholes Formula

Financial Engineering and Security Design

Corporate Applications

Real Options

Filters

Exam 10: Binomial Option Pricing

Assume the following data on a 6-month put option, using 3-month intervals as the time period. K = $40.00, S = $37.90, r = 5.0%, = .35. What is the binomial option price?

Using a binomial tree explanation, explain the situation in which an American option would alter the pricing of an option.

For a specific futures option, given d = .813 and u = 1.367, what is the risk neutral probability of an up move in the price of the option?

A stock is selling for $53.20. Interest rates are 6.0% and the returns on the stock have a standard deviation of 24.0%. What is the forecasted up movement in the stock over a 6- month interval?

For an option trading in the money, what is the likely impact on the binomial option price as the number of binomial steps is increased?

Using a binomial tree, what is the price of a $40 strike 6-month put option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, σ = 0.35

Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month put option, using 3-month intervals as the time period. K = $40.00, S = $37.90, r = 5.0%, σ = 0.35

In the case of a 1-year option, the current stock price is $52 per share. If the stock price has an equal chance of ending the year at either $58 or $45, what is the △ given an interest rate of 6.0% and an exercise price of $50?

Draw the binomial tree listing only the option prices at each node. Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $40, S = $37.90, r = 5.0%, σ = 0.35

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $70, S = $68.50, r = 6.0%, = .32. What is the highest possible stock price associated with this data and the binomial pricing model?

A stock is selling for $68.50. Interest rates are 6.0% and the returns on the stock have a standard deviation of 32.0%. What is the forecasted price of the stock using 3-month periods at Suudu?

What is the binomial option price assuming the following data on a 6-month call option, using 3-month intervals as the time period? K = $40, S = $37.90, r = 5.0%, = .35

A stock is selling for $53.20. Interest rates are 6.0% and the returns on the stock have a standard deviation of 24.0%. What is the forecasted up movement in the stock over 6 months, assuming two periods of 3 months each?

Using a binomial tree, what is the price of a $40 strike 6-month call option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, σ = 0.35

A stock is currently selling for $22.00 per share. Ignoring interest, determine the intrinsic value of a call option should there exist equally probable stock prices of $25.00 and $23.00.

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $50, S = $48, r = 4.0%, = .27. What is the highest expected stock price after 3 months according to the binomial model?

Which number of binomial periods is most likely to produce the most accurate price?

A stock is selling for $41.60. The strike price on a call, maturing in 6 months, is $45. The possible stock prices at the end of 6 months are $35.00 and $49.00. Interest rates are 5.0%. Given an under-priced option, what are the short sale proceeds in an arbitrage strategy?

Explain the impact a constant dividend yield would have on the price of a call option.

Assume the following data on a 6-month call option, using 3-month intervals as the time period. K = $50, S = $48, r = 4.0%, = .27. What is the risk neutral probability of an up move in the stock price?

Introduction to Derivatives

An Introduction to Forwards and Options

Insurance, Collars, and Other Strategies

Introduction to Risk Management

Financial Forwards and Futures

The Wide World of Futures Contracts

Interest Rates Forwards and Futures

Swaps

Parity and Other Option Relationships

The Black-Scholes Formula

Financial Engineering and Security Design

Corporate Applications

Real Options

Filters

A stock is selling for $68.50. Interest rates are 6.0% and the returns on the stock have a standard deviation of 32.0%. What is the forecasted price of the stock using 3-month periods at S_uudu?