5..

1.

Suppose that the price of IBM stock is currently $50. In the next six months it will either fall to $30 or rise to $80. What is the option delta of a call option with a strike price of $50?

Select one:

a. 0.5

b. 0.6

c. 0.375

d. 0.75

2.The delta of a call option is ______ , whereas the delta of a put option is ______ .

select one: positive or negative

3.One key assumption of the binomial option pricing model is that ______ opportunities do not exist

4.

Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is six months. What is the value of p for a one-step tree?

Select one:

a. 0.52

b. 0.50

c. 0.49

d. None of the above

5.

Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is six months. What are the values of u and d for a one-step tree?

Select one:

a. 1.24 and 0.81

b. 1.16 and 0.86

c. 1.09 and 0.92

d. None of the above

6.

Under the replicating portfolio valuation approach, there are two ways in which the option payoff can be replicated: constructing a portfolio consisting of stock and______ bonds; and constructing a portfolio consisting of stock and the _______ itself.

7.

If the volatility of a non-dividend paying stock is 20% per annum and a risk-free rate is 5% per annum, what is the value of parameter u for a tree with a three-month time step?

Select one:

a. 1.11

b. 1.05

c. 1.09

d. 1.07

8.

In a risk-neutral world, the expected return on stock is

Select one:

a. It is impossible to calculate it without more information

b. Zero

c. The return required by the market

d. The risk-free rate

9.

A stock price is currently $50. It is known that at the end of 6 months it will be either $45 or $55. The risk-free interest rate is 9% per annum with continuous compounding. What is the value of a 6-month European put option with a strike price of $50?

Select one:

a. 1.16

b. 1.52

c. 1.29

d. 1.34

10.

The stockoption replicating portfolio approach is also known as the "________ hedging" approach

Select one:

a. Gamma

b. Theta

c. Delta

d. Beta