1) You have become convinced the price performance of the Japanese stock market has been too calm over the past calendar quarter and you expect this pattern to change within the next few months. Describe two option strategies you might consider to express (i.e., invest in) your view. What are the comparative advantages and disadvantages (i.e., the trade-offs) of these two strategies?

2) In the United States, most fixed rate residential mortgages are prepayable at any time without penalty. Identify the following elements of this prepayment option: (i) who sells the option, (ii) who buys the option, (iii) its strike price, (iv) whether it is a put or a call, and (v) whether it is European or American style in nature.

3) The grant of long-term options in a company's stock to that company's senior executives is a common compensation and retention strategy employed by Boards of Directors. These options are typically set with exercise prices above the current price of the company's stock and they are usually exercisable at any time after a multi-year vesting period.

a) Describe the nature of these options in terms of (i) whether they are a put or a call, (ii) whether thay are in-, at-, or out-of-the-money, and (ii) their exercise style.

b) Why are these options typically considered to be quite valuable?

c) Which practice do you find to be more insidious with regard to these executive options grants, "back-dating" or "spring-loading"? Briefly explain your answer.