1) 9-month 45 puts and 45 calls on Astro stock are trading at $1.25 and $6.75. Astro does not pay dividends and is trading at $47/share. If the risk-free rate is 4%, which portfolio would produce an arbitrage profit?

A. Long the call and a bond, short the stock and put.

B. Borrow funds, short the put and call, long the stock.

C. Borrow funds, short the call, long the stock and put.

2) Tony Mart notes that the Federal Reserve has begun to decrease the rate of growth of the money supply. Which of the following reflects the most likely effect of this change in monetary policy on the value of Zeta Corp. put and call options?

PUT	CALL
a. Increase	Decrease
b. Decrease	Increase
c. Decrease	Decrease

3) Which of the following is least likely to be required by the binomial option pricing model?

A. Spot price. B. Two possible prices one period later. C. Actual probabilities of the up and down moves.