Exam 13: Risk and the Pricing of Options

ABX corporation is currently trading for $45 per share.The stock will pay a one-time dividend of $2.25 in exactly 3 months.A one-year European call option on ABX with a strike price of $50 is currently trading for $2.40.If the risk-free interest rate is 9% per year,then the price of a one-year European put option on ABX with a strike price of $50 will be closest to:

The Black-Scholes formula gives the price of an American call option.

Which of the following will increase the value of a put option?

Use the table for the questions below Consider the following information on options from the CBOE for Rackspace. -Assume you want to buy 10 put option contracts with an exercise price closest to being at-the-money and that expires January 2011.The current price that you would have to pay for such a contract is:

A put option on a stock has an exercise price of $74.If the stock price at expiration is $79,what is the option payoff for a long put position?

Rose Industries is currently trading for $47 per share.The stock pays no dividends.A one-year European call option on Luther with a strike price of $45 is currently trading for $7.45.If the risk-free interest rate is 6% per year,then calculate the price of a one-year European put option on Luther with a strike price of $45.

Consider the following equation: C = P + S - PV(K)- PV(Div) In this equation,what does the term K represent?

Equity holders have an incentive to ________ the volatility of a firm's assets because they benefit from such an increase at a cost to ________.

What are American options?

A call option on a stock has an exercise price of $34.50.If the stock price at expiration is $37.50,what is the option payoff for a short call position?

Suppose a stock is currently trading for $12,and in one period it will either increase to $15 or decrease to $8.If the one-period risk-free rate is 4%,what is the price of a European put option that expires in one period and has an exercise price of $10?

A protective put written on a portfolio (rather than a single stock)is known as:

The payoff to the holder of a put option is given by:

When you purchase a put option while still holding the underlying stock,it is known as a:

What is a put option?

How is equity like a call option on the firm's assets?

Suppose you purchase a call option for $5 and a strike price of $40.On the expiration day,the price of the stock is $55.What is the return on the call option if you hold your position until maturity?

The open interest for a January 2011 call option that is closest to being at-the-money is:

The price at which the holder of an option buys or sells a share of stock when the option is exercised is called the ________ price.

The value of an otherwise identical American call option is ________ if the exercise date is ________.