18

Question 28

1. Which of the following positions are bullish on the market? I. buying a protective put II. writing a put III. buying a call

   		II, III
   		I, II
   		I, II, III
   		I, III

1. Which of the following statements is TRUE? I. The binomial model does not assume that investors are risk neutral. II. If the binomial is extended to multiple periods for a fixed option life, the up and down factors and the risk-free rate must be increased.

   		Both I and II are not true.
   		I
   		Both I and II are true.
   		II

Question 21

1. Consider a binomial world in which the current stock price of 100 can either go up by 10 percent or down by 10 percent. The risk-free rate is 4 percent. Assume a two-period world. What is the theoretical value of the American call with an exercise price of 100?

   		9.51
   		6.73
   		9.62
   		9.89