Exam 13: Risk and the Pricing of Options

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Use the figure for the question(s)below. Use the figure for the question(s)below.   -This graph depicts the payoffs of a: -This graph depicts the payoffs of a:

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A call option on a stock has an exercise price of $14.If the stock price at expiration is $13.50,what is the option payoff for a long call position?

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________ options allow the holder to exercise the option only on the expiration date.

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When the exercise price of a call option is lower than the current price of the stock,the option is said to be:

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The holder of a put option has:

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When the exercise price of an option is equal to the current price of the stock,the option is said to be:

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Although the payouts on a long position in an options contract are never negative,the profit from purchasing and holding it could be negative.

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

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The price of a call option on Microsoft stock with a maturity of six months and a strike price of $40 is $3.50,and the price of the stock is $38.50.The price of a put option on the same stock with the same strike price and time to maturity is $1.25.Calculate the risk-free rate.

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What are European options?

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What is the long position of an options contract?

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The price of a European put option on Air Canada stock with an exercise price of $10 and one year to expiry is trading at $1.55.The current price of the stock is $11,and the risk-free rate is 5%.With no arbitrage,what must be the price of a European call on Air Canada with an exercise price of $10?

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