Question 1

From American put-call parity,what are the minimum and maximum values that the sum of the stock price and December 110 put price can be?

Accepted Answer

A) 101.81 and 102.87 
B) 2.50 and 113.25 
C) 116.038 and 117.10 
D) 7.125 and 110 
E) none of the above 
A) 101.81 and 102.87 
B) 2.50 and 113.25 
C) 116.038 and 117.10 
D) 7.125 and 110 
E) none of the above

Question 2

Suppose the stock is about to go ex-dividend in one day.The dividend will be $4.00.Which of the following calls will you consider for exercise?

Accepted Answer

A) November 115 
B) November 110 
C) December 115 
D) all of the above 
E) none of the above 
A) November 115 
B) November 110 
C) December 115 
D) all of the above 
E) none of the above

Question 3

Which of the following is the lowest possible value of an American put on a stock with no dividends?

Accepted Answer

A) X(1 + r)-T 
B) X 
C) Max(0,X(1 + r)-T - S0) 
D) Max(0,X - S0) 
E) none of the above 
A) X(1 + r)-T 
B) X 
C) Max(0,X(1 + r)-T - S0) 
D) Max(0,X - S0) 
E) none of the above

Question 4

The maximum difference between the January 105 and 110 calls is which of the following?

Accepted Answer

A) 11.50 
B) 4.92 
C) 5.00 
D) 4.0 
E) none of the above 
A) 11.50 
B) 4.92 
C) 5.00 
D) 4.0 
E) none of the above

Question 5

An option can be priced at less than zero because it can potentially generate a large profit for its owner.

Accepted Answer

A) True 
 B)False

Question 6

At expiration the call price must converge to the stock price.

Accepted Answer

A) True 
 B)False

Question 7

Selling short a risk-free bond is equivalent to borrowing.

Accepted Answer

A) True 
 B)False

Question 8

The following quotes were observed for options on a given stock on November 1 of a given year.These are American calls except where indicated.Use the information to answer questions 7 through 20.
   The stock price was 113.25.The risk-free rates were 7.30 percent (November),7.50 percent (December)and 7.62 percent (January).The times to expiration were 0.0384 (November),0.1342 (December),and 0.211 (January).Assume no dividends unless indicated.
-What is the time value of the January 115 call?

Accepted Answer

A) 5.30 
B) 0.00 
C) 3.50 
D) 1.70 
E) none of the above 
A) 5.30 
B) 0.00 
C) 3.50 
D) 1.70 
E) none of the above

Question 9

The following quotes were observed for options on a given stock on November 1 of a given year.These are American calls except where indicated.Use the information to answer questions 7 through 20.
   The stock price was 113.25.The risk-free rates were 7.30 percent (November),7.50 percent (December)and 7.62 percent (January).The times to expiration were 0.0384 (November),0.1342 (December),and 0.211 (January).Assume no dividends unless indicated.
-What is the intrinsic value of the December 115 put?

Accepted Answer

A) 1.75 
B) 0.00 
C) 3.90 
D) 3.00 
E) none of the above 
A) 1.75 
B) 0.00 
C) 3.90 
D) 3.00 
E) none of the above

Question 10

The following quotes were observed for options on a given stock on November 1 of a given year.These are American calls except where indicated.Use the information to answer questions 7 through 20.
   The stock price was 113.25.The risk-free rates were 7.30 percent (November),7.50 percent (December)and 7.62 percent (January).The times to expiration were 0.0384 (November),0.1342 (December),and 0.211 (January).Assume no dividends unless indicated.
-What is the European lower bound of the December 105 call?

Accepted Answer

A) 9.86 
B) 0.00 
C) 8.25 
D) 9.26 
E) none of the above 
A) 9.86 
B) 0.00 
C) 8.25 
D) 9.26 
E) none of the above

From American put-call parity,what are the minimum and maximum values that the sum of the stock price and December 110 put price can be?

Suppose the stock is about to go ex-dividend in one day.The dividend will be $4.00.Which of the following calls will you consider for exercise?

Which of the following is the lowest possible value of an American put on a stock with no dividends?

The maximum difference between the January 105 and 110 calls is which of the following?

An option can be priced at less than zero because it can potentially generate a large profit for its owner.

At expiration the call price must converge to the stock price.

Selling short a risk-free bond is equivalent to borrowing.

Introduction

Structure of Options Markets

Option Pricing Models: the Binomial Model

Option Pricing Models: the Black-Scholes-Merton Model

Basic Option Strategies

Advanced Option Strategies

The Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures, and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Applications

Managing Risk in an Organization

Filters

Exam 3: Principles of Option Pricing

From American put-call parity,what are the minimum and maximum values that the sum of the stock price and December 110 put price can be?

Suppose the stock is about to go ex-dividend in one day.The dividend will be $4.00.Which of the following calls will you consider for exercise?

Which of the following is the lowest possible value of an American put on a stock with no dividends?

The maximum difference between the January 105 and 110 calls is which of the following?

An option can be priced at less than zero because it can potentially generate a large profit for its owner.

At expiration the call price must converge to the stock price.

Selling short a risk-free bond is equivalent to borrowing.

Introduction

Structure of Options Markets

Option Pricing Models: the Binomial Model

Option Pricing Models: the Black-Scholes-Merton Model

Basic Option Strategies

Advanced Option Strategies

The Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures, and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Applications

Managing Risk in an Organization

Filters