Suppose that you observe a European option on a currency with an exchange rate of S0 and a foreign risk-free rate of$ \rho $.Which of the following inequalities correctly expresses the lower bound of the call?

A) Ce(S0,T,X)≥ Max[0,S0(1 +$ \rho $)-T + X(1 + r)-T] B) Ce(S0,T,X)≥ Max[0,S0 - X(1 +$ \rho $)-T] C) Ce(S0,T,X)≥ Max[0,S0(1 +$ \rho $)-T - X] D) Ce(S0,T,X)≥ Max[0,S0(1 +$ \rho $)-T - X(1 + r)-T] E) none of the above A) Ce(S0,T,X)≥ Max[0,S0(1 +$ \rho $)-T + X(1 + r)-T] B) Ce(S0,T,X)≥ Max[0,S0 - X(1 +$ \rho $)-T] C) Ce(S0,T,X)≥ Max[0,S0(1 +$ \rho $)-T - X] D) Ce(S0,T,X)≥ Max[0,S0(1 +$ \rho $)-T - X(1 + r)-T] E) none of the above

Exam 3: Principles of Option Pricing

Suppose you use put-call parity to compute a European call price from the European put price,the stock price,and the risk-free rate.You find the market price of the call to be less than the price given by put-call parity.Ignoring transaction costs,what trades should you do?

(Multiple Choice)

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Question 41

Suppose that you observe a European option on a currency with an exchange rate of S₀ and a foreign risk-free rate of $\rho$ .Which of the following inequalities correctly expresses the lower bound of the call?

(Multiple Choice)

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Question 42

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 January 110 call?

(Multiple Choice)

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Question 43

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

(Multiple Choice)

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Question 44

Given a longer-lived American call and a shorter-lived American call with the same terms,the longer-lived call must always be worth

(Multiple Choice)

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Question 45

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 November 115 call?

(Multiple Choice)

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Question 46

Holding everything else constant,call options are more expensive in periods of high interest rates.

(True/False)

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Question 47

High volatility is bad for option holders because it increases the probability that the option will expire out-of-the-money.

(True/False)

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Question 48

The difference between two American put options with different strike prices is less than or equal to the dollar difference between the strike prices,the higher strike price minus the lower strike price.

(True/False)

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Question 49

Which of the following inequalities correctly states the relationship between the difference in the prices of two European calls that differ only by exercise price

(Multiple Choice)

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Question 50

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?

(Multiple Choice)

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Question 51

The concept of the intrinsic value does not apply to European calls prior to expiration because they cannot be exercised immediately.

(True/False)

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Question 52

At expiration,the value of a European call is S_T - X.

(True/False)

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Question 53

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 November 115 call?

(Multiple Choice)

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Question 54

Put-call parity is a relationship that can be used to provide the price of both a European put and call simultaneously.

(True/False)

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Question 55

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 November 105 put?

(Multiple Choice)

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Question 56

Showing 41 - 56 of 56

Suppose you use put-call parity to compute a European call price from the European put price,the stock price,and the risk-free rate.You find the market price of the call to be less than the price given by put-call parity.Ignoring transaction costs,what trades should you do?

Suppose that you observe a European option on a currency with an exchange rate of S₀ and a foreign risk-free rate of $\rho$ .Which of the following inequalities correctly expresses the lower bound of the call?

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

Given a longer-lived American call and a shorter-lived American call with the same terms,the longer-lived call must always be worth

Holding everything else constant,call options are more expensive in periods of high interest rates.

High volatility is bad for option holders because it increases the probability that the option will expire out-of-the-money.

The difference between two American put options with different strike prices is less than or equal to the dollar difference between the strike prices,the higher strike price minus the lower strike price.

Which of the following inequalities correctly states the relationship between the difference in the prices of two European calls that differ only by exercise price

The concept of the intrinsic value does not apply to European calls prior to expiration because they cannot be exercised immediately.

At expiration,the value of a European call is S_T - X.

Put-call parity is a relationship that can be used to provide the price of both a European put and call simultaneously.

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

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 Appplications

Managing Risk in an Organization

Filters

Exam 3: Principles of Option Pricing

Suppose you use put-call parity to compute a European call price from the European put price,the stock price,and the risk-free rate.You find the market price of the call to be less than the price given by put-call parity.Ignoring transaction costs,what trades should you do?

Suppose that you observe a European option on a currency with an exchange rate of S0 and a foreign risk-free rate of ρ \rho ρ .Which of the following inequalities correctly expresses the lower bound of the call?

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

Given a longer-lived American call and a shorter-lived American call with the same terms,the longer-lived call must always be worth

Holding everything else constant,call options are more expensive in periods of high interest rates.

High volatility is bad for option holders because it increases the probability that the option will expire out-of-the-money.

The difference between two American put options with different strike prices is less than or equal to the dollar difference between the strike prices,the higher strike price minus the lower strike price.

Which of the following inequalities correctly states the relationship between the difference in the prices of two European calls that differ only by exercise price

The concept of the intrinsic value does not apply to European calls prior to expiration because they cannot be exercised immediately.

At expiration,the value of a European call is ST - X.

Put-call parity is a relationship that can be used to provide the price of both a European put and call simultaneously.

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

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 Appplications

Managing Risk in an Organization

Filters

Suppose that you observe a European option on a currency with an exchange rate of S₀ and a foreign risk-free rate of $\rho$ .Which of the following inequalities correctly expresses the lower bound of the call?

At expiration,the value of a European call is S_T - X.