1. A European call and a European put written on the same stock with the same time to maturity (6 months) and the same exercise price ($25) are trading at $2.5 and $1.0 respectively. The breakeven stock prices at maturity for a strip are $16.65 and $26.70. b. $14.50 and $22.75. $22.00 and $29.50. d. $17.50 and $21.70. a. c. 2. a. If X1 = $25, X2 = $30, C1 = $3.5, and c2 = $1.0, then the net profit from a bull spread will be when the stock price at the option's maturity is $30. $0.5 b. - $0.5 - $2.5 d. $2.5 C. 3. a. If you anticipate a dramatic market movement in the near future, but are not sure which direction the market will be headed, then the most appropriate position to take is a short call. b. a short strip. a long butterfly. d. a short straddle. e. a long strangle. c. 4. a. Which statement is false? A European call with infinite maturity is worth the same as the underlying stock. b. A European put with infinite maturity is worth zero. A European put option is worth less than, or equal to the present value of the exercise price. d. A European call can never be worth more than the present value of the exercise price. c. 5. A two-year European put option is written on a stock whose current price is $19. The stock will pay a dividend of $1 three months from now and another $1 one and half years from now. The strike price is $20, and the riskfree interest rate is 5%. Then the tightest lower bound for the put option value is, $1.012 b. $1.342 $1.427 d. $1.512 $1.912 a. e. 6. A two-year European call option is written on a stock whose current price is $20. The stock will pay a dividend of $1 three months from now and another $1 one and half years from now. The strike price is $18, and the riskfree interest rate is 5%. Then the tightest lower bound for the call option value is, $1.8976 b. $1.535 c. $1.194 d. $1.7976. a. 7. a. Six-month call options with strike prices of $25 and $30 cost $4 and $3 respectively. Then the maximum possible gain and loss from a bear spread formed using the two calls are respectively $10 and infinity b. $10 and $10 $1 and $4 d. $4 and $1 $10 and $5 c. e. 8. Twelve-month European put options with strike prices of $35, $30, and $25 cost $7, $3.5, and $2 respectively. Then the maximum possible gain and loss from a butterfly spread formed using the three puts are respectively a. $4.5 and infinity b. $4.5 and $0.5 $0.5 and $4.5 d. $3 and $0.5 $10 and $4.5 c. e. 9. A three-month call with a strike price of $20 costs $1. A three-month put with a strike price of $15 costs $2. A trader uses the options to create a strangle. For what two values of the terminal stock price does the trader breakeven with a profit of zero? $23 and $12. b. $20 and $25. $15 and $25. d. $12 and $23. a. c. 10. Consider a European call option on a currency. The exchange rate is 1.135, the strike price is 1.130, the time to maturity is one year, the domestic risk-free rate is 5% per annum and the foreign risk-free rate is 3% per annum. What is the lower bound to the option price? $0.0266. b. $0.0148. $0.0286. d. $0.0281. a. C. 11. Suppose that a futures price is $21, the strike price of a nine-month European call on the futures is $20, the riskfree rate is 5% per annum, and the value of the option is $1. Then the value of a put option with the same strike price and time to maturity is a. $0.2058 b. $0.9420 c. $0.2639 d. $0.2894. 12. When a put option on a futures contract is exercised, the holder of the put acquires a. A long position in the futures contract b. A short position in the futures contract c. A long position in the underlying asset d. None of the above. 13. The spot price exchange rate between Euro and the U. S. dollar is Euro 0.9/$. A call option on the exchange with maturity 6 months and a strike of Euro 0.92/$ is trading at $0.04. The corresponding put option is trading at $0.06. The 6-month riskfree interest rate in the U.S. is 3% (continuously compounded). What is the 6- month lending and borrowing rate for Euro? a. 3.2949% b. 3.0672% c. 3.7115% d. 3.150% 14. Which statement is false? a. An up-and-in call will become a regular call when the barrier is equal to the current asset price. b. If the options underlying the chooser option are both European and have the same strike price, then put-call parity can be used to value the option. A long range forward consists of a short put and a long call on the same underlying asset with the same time-to-maturity, and the call's exercise price being higher than the put's so that the initial cost is zero. d. To hedge its revenue in the winter season, a natural gas company should short futures contracts on heating degree days. A lookback call or a lookback put can never have a zero payoff. c. e. 15. A corporate bond is equivalent to a. b. c. d. a riskfree bond plus a long call written on the value of the firm. a riskfree bond plus a short call written on the value of the firm. a riskfree bond plus a long put written on the value of the firm. a riskfree bond plus a short put written on the value of the firm