1.The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What, to the nearest cent, is the price of a put option with the strike price of $32?

2.A stock price is currently $30. During each two-month period for the next four months it is expected to increase by 8% or decrease by 10%. No dividend payment is expected during these two periods. The risk-free interest rate is 5% per annum. If you use a two-step tree to do the valuation, what, to the nearest cent, is the value of a European put option with a strike price of $32 that expires in four months?

3. In question 2 above, what, to the nearest cent, is the value of a American put option with a strike price of $32 that expires in four months?

4. A stock price is currently $30. During the next six months it is expected to increase by 8% or decrease by 10%. No dividend payment is expected during these six month. The risk-free interest rate is 5% per annum. What is the risk neutral probability of the stock price moving up?

5.The volatility of a stock is 0.3 per annum. In a Cox-Ross-Rubinstein binomial tree in which one step represents a time interval of 6 months, what are the proportional up-movement and down-movement factors,u and d, respectively?

6.The current price of a non-dividend-paying stock is 30. The volatility of the stock is 0.3 per annum. The risk free rate is 0.05 for all maturities. Using the Cox-Ross-Rubinstein binomial tree model with one time step to do the valuation, what is the value of a call option with a strike price of 32 that expires in 6 months?

7.A stock price is $100. Volatility is estimated to be 20% per year. What is the an estimate of the standard deviation of the change in the stock price in one week?

a. $0.38

b. $2.77

c.$3.02

d.$0.76

8. In the Black-Scholes-Merton option pricing formulaN(d1) denotes (choose one)

a. The area under a standard normal distribution from zero to d1

b.The area under a standard normal distribution from the negative infinity up to d1

c.The area under a standard normal distribution above d1

d.The area under a standard normal distribution between -d1 and d1

9.Consider a six-month European call option on a non-dividend-paying stock. The stock price is $30, the strike price is $29, and the continuously compounded risk-free interest rate is 6% per annum. The volatility of the stock price is 20% per annum. What is price of the call option according to the Black-Schole-Merton model?