QUESTION 2

An option strategy of buying a call and a put with strike price equal to the current stock price is known as:

		Bull spread
		Covered call
		Long Straddle
		Protective put

QUESTION 2A

Apples current stock price is $269 and a call option with a strike price of $291.312 expiring in two years has a price of $23. Apple will pay a $5.10 dividend in one year. If the interest rate is 2%, what is the price implied by put-call parity for a put option with a $291.312 strike price that matures in two years?

		Less than $25
		Between $25 and $30
		Between $30and $35
		Between $35 and $40
		More than $40

QUESTION 2B

You have gathered the following information for call and put options on the same stock with the same exercise price:

d1

0.2495

Based on this information, what is the value of N(d₁) rounded to the nearest tenth in the Black-Scholes formula?

		Less than 0.35
		Between 0.35 and 0.45
		Between 0.45 and 0.55
		Between 0.55 and 0.65
		More than 0.65

QUESTION 2C

You have gathered the following information for a call option on a non-dividend paying stock:

Current stock price ($)	106
Exercise price ($)	104
Time to Expiration (Years)	1
Returns standard deviation (%)	25
Risk Free Rate (APR with annual compounding)	3.00%

Based on this information, what is the price of the call option using the Black-Scholes formula?

		Less than $10
		Between $10 and $15
		Between $15 and $20
		Between $20 and $25
		More than $25