1. On November 1, suppose S = 113.25, X = 115, T = 0.211, r = 7.62%, C = 5.30, P = 4.80. Assume no dividends unless indicated. Suppose you knew that the January 115 options were correctly priced but suspected that the stock was mispriced. Using put-call parity, what would you expect the stock price to be? For this problem, treat the options as if they were European.

		113.73
		123.23
		121.23
		112.77
		none of the above

4. On November 1, suppose S = 113.25, X = 115, T = 0.1342, r = 7.50%, P = 4.80. Assume no dividends unless indicated. What is the intrinsic value of the December 115 put?

		1.75
		0.00
		3.90
		3.00
		none of the above

6.

In a one-period binomial model with Su = 49.5, Sd = 40.5, p = 0.8, r = 0.06, S = 45 and X = 50, what is a European put worth?

2.17

0.50

9.50

5.00

none of the above

7.

The values of u and d are which of the following?

the return on the stock if it goes up and down, respectively

the inverse of the ratio of the up and down probabilities, respectively, and the risk-free rate

the normal probabilities of up and down movements, respectively

one plus the return on the stock if it goes up and down, respectively

none of the above

9.

Option traders incur which of the following types of costs?

margin requirements

taxes

stock trading commissions

a and b

a, b and c

10.

Which of the following statements about an American call is not true?

Its time value decreases as expiration approaches

Its maximum value is the stock price

It can be exercised prior to expiration

It pays dividends

none of the above

12.

On November 1, suppose S = 113.25, X = 105, T = 0.1342, r = 7.50%, P = 1.30. Assume no dividends unless indicated. What is the time value of the December 105 put?

		1.30
		8.30
		0.00
		7.00
		none of the above

13.

In a two-period binomial world, a mispriced call will lead to an arbitrage profit if

the proper hedge ratio is maintained over the two periods

the hedge portfolio is terminated after one period

the option goes from over- to underpriced or vice versa

the option remains mispriced over both periods

none of the above

14.

All of the following are variables used to determine a call option s price except

the risk-free rate

the probability of stock price movement

the exercise price

the possible future stock prices at expiration

none of the above

15.

A call option gives the holder

		the right to buy something
		the right to sell something
		the obligation to buy something
		the obligation to sell something
		none of the above