Q37) Question

Which of the following statements are true about the Black-Scholes-Merton model?

1. The interest rate to be used in the formula is the effective annual rate (EAR).

2. The model can used to price only European options and not American options. true

3. The model assumes constant volatility of the stock.

Select one:

a. i and ii

b. i and iii

c. ii and iii

d. i, ii, and iii are all true

e. i, ii, and iii are all false

Q38)Question

In call option pricing, the risk-neutral probability of a European call ending in the money at maturity is

Select one:

a. Ke-rTN(d2)

b. N(d2)

c. N(d1)

d. S N(d1) not sure

e. None of the given choices

Q39 Question

The price of a European call option on a non-dividend paying stock is $3.48. Which of the following is the price of an American call option on the same stock with the same strike price and maturity as that of the European call option? The strike price is $60, volatility is 40%, interest rate is 8%, and the time to maturity is 9 months.

Select one:

a. $4.12

b. $2.16

c. $1.60

d. The given information is insufficient to answer the question

e. None of the given choices is correct

Question 40:

You have a portfolio comprising of a long bull spread and short a bear spread with the same maturities and the same strike prices, K1 and K2, and K1 < K2. This is the same as:

Select one:

a. Long on a forward contract with forward price K2 and short on a forward contract with forward price K1.

b. Long on a forward contract with forward price K2 and long on a forward contract with forward price K1

c. Long on a zero-coupon bond with a face value of K2 - K1.

d. Short on a zero-coupon bond with a face value of K2 - K1.

e. None of the given choices is correct.