Question
1.Google puts with 4 months to expiration and an exercise price of $680 trade for $27. Google calls with 4 months to expiration and an
1.Google puts with 4 months to expiration and an exercise price of $680 trade for $27. Google calls with 4 months to expiration and an exercise price of $680 trade for $45. If the interest rate over 4 months is 1%, what price is Google stock trading for? Assume all options are European and Google pays no dividends.
2.. Will the value of a call option be larger or smaller, all else the same, if:
a. The volatility of the underlying asset is higher.
b. The option has 3 months rather than 6 months to expiration.
c. The exercise price was $15 rather than $10.
d. The stock price falls to $10 from $12.
3. Market efficiency implies that you might as well invest by picking a stock selected by a
dart thrown at the newspaper stock pages. Clearly state, True, False, or Uncertain." Explain.
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