Exam 9: No-Arbitrage Restrictions

Consider two American call options, with maturities three months and six months on the same stock and same strike price. The stock pays dividends in two months time and every quarter thereafter. Which of the following statements is most accurate?

Non-dividend paying stock XYZ is trading at $20. The risk free rate is 2%. The minimum price of a four-month American put option at strike $22 is

A "no-arbitrage restriction" on option prices is the statement that

Consider five put options at strikes 40, 45, 50, 55, and 60. The price of the 40-strike option is $4, the price of the 50-strike put is $5, and the price of the 60-strike option is $8. Which of the following statements is most accurate? (Assume all options have the same maturity.)

Consider two European put options, with maturities three months and six months on the same stock and same strike price. The stock pays no dividends. Which of the following statements is most accurate?

Consider two European call options, with maturities three months and six months on the same stock and same strike price. The stock pays dividends in two months time and every quarter thereafter. Which of the following statements is most accurate?

Consider a pair of at-the-money European call and a put options written on the same non-dividend-paying stock with the same maturity. Which of the following statements is most accurate?

The current price of a stock is $100. The stock pays a dividend of $2 in three months. The risk free rate of interest for all maturities in annualized and continuously-compounded terms is 2%. What is the minimum price of an at-the-money American call option on the stock with six months maturity?

A stock is trading at $70. A one-month at-the-money call option on the stock is priced at $0.10. The risk free rate of interest is 2%. Which of the following statements is most accurate?

The current price of a non-dividend paying stock is $40. A European call option with three months maturity and strike $39 is priced at $2. The risk free rate of interest for three months is 2%. Which of the following statements is correct?

All else the same, when the interest rate rises, the lower bound on a put option

Consider two six-month European calls at strikes 90 and 100. The risk free rate is 2%. Which of the following alternatives best describes the condition that must be met by the difference in prices $C ( 90 ) - C ( 100 )$ ?

All else the same, when the interest rate rises, the lower bound on a call option

The 50-strike call on a stock is trading at $13 and a 60-strike call on the same stock with the same maturity is trading at $4. The minimum price of the 100-strike call is

There are three- and six-month European calls on $A B C$ stock. Suppose the three-month option costs $5 and the six-month option costs $3. Then, there is an arbitrage strategy that involves, among other things,

Consider three put options at strikes 40, 50, and 60. The price of the 40-strike option is $4 and the price of the 60-strike option is $8. Which of the following statements is most accurate? (Assume all options have the same maturity.)

Consider two six-month American puts at strikes 90 and 100. The risk free rate is 2%. The difference between the two put prices at any time before maturity will always be

An arbitrage opportunity is any situation in which

There are three- and six-month American calls on $A B C$ stock. Suppose the three-month option costs $5 and the six-month option costs $3. Which of the following statements is most accurate given this information?