1. Which of the following statements about gamma is false?

The gamma of a portfolio can be modified by adding stock to the portfolio

It is risky not to change a delta-neutral rather frequently if gamma is large

The gamma of a portfolio can be modified by adding a position in the traded option to the portfolio

2. The implied volatilities of a call and a put with the same option terms are calculated using the Black-Scholes model. Which of the following is true?

No theoretical relationship exists between the implied volatility of the call and the implied volatility of the put

The calls implied volatility should be less than the puts

The calls implied volatility should be equal to the puts

The calls implied volatility should be greater than the puts

3. Consider an option on a non-dividend paying stock where the stock price is $30, the strike price is $29, the continuously compounded risk-free rate of return is 5% per year, the continuously compounded standard deviation of its return is 25% per year and the time to maturity is 4 months.If the Black-Scholes price of a European call on this option is C, the purchaser of this European call would break-even (ignoring the time value of money) if the stock price at maturity is