a1. If you have $1,000 today, how much will it be worth in 5 years at 6 percent per year compounded continuously?

Multiple Choice

• $740.82

• $1,295.86

• $1,349.86

• $1,338.23

• $1,403.85

a2. A put option and call option with an exercise price of $62 expire in one months and sell for $3.26 and $4.3, respectively. If the stock is currently priced at $62.86, what is the annual continuously compounded rate of interest?

Multiple Choice

• 36.22%

• 152.81%

• 3.35%

• 3.49%

• 3.63%

b1. A put option that expires in four months with an exercise price of $50 sells for $4.47. The stock is currently priced at $55, and the risk-free rate is 3.2 percent per year, compounded continuously. What is the price of a call option with the same exercise price?

Multiple Choice

• $1.06

• $9.70

• $10.40

• $10.00

• $9.30

b2. A call option has an exercise price of $83 and matures in 6 months. The current stock price is $87, and the risk-free rate is 7 percent per year, compounded continuously. What is the price of the call if the standard deviation of the stock is 0 percent per year?

Multiple Choice

• $46.93

• $87.00

• $7.13

• $83.00

• $6.85

c1. A call option with an exercise price of $20 and 6 months to expiration has a price of $3.83. The stock is currently priced at $17.84, and the risk-free rate is 5 percent per year, compounded continuously. What is the price of a put option with the same exercise price?

Multiple Choice

• $5.39

• $5.77

• $0.09

• $5.50

• $1.15

c2. You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.6 million. Over the past five years, the price of land in the area has increased 13 percent per year, with an annual standard deviation of 20 percent. A buyer has recently approached you and wants an option to buy the land in the next 8 months for $1,780,000. The risk-free rate of interest is 3 percent per year, compounded continuously. How much should you charge for the option?

Multiple Choice

• $51,365.47

• $137,794.43

• $32,300.25

• $48,797.20

• $53,933.74

d. You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.5 million. Over the past five years, the price of land in the area has increased 9 percent per year, with an annual standard deviation of 20 percent. A buyer has recently approached you about buying the land in the next 10 months for $1,620,000. The risk-free rate of interest is 6 percent per year, compounded continuously. You want the option to sell the land to the buyer in one year. What is the price of the transaction today?

Multiple Choice

• $132,290.15

• $86,506.00

• $138,904.66

• $96,914.05

• $91,298.49