Question 5 Consider the toss of a (loaded) coin. In a "good" outcome, punter (bettor) will receive 1 in 12 months. In a "bad" outcome she will not receive anything. The fair market price of this bet is 0.45 and current prevailing risk-free interest rate is 0%. What is the implied probability of a "good" outcome? 0.3 0.45 (C) 0.55 (D) 0.6 Which of the following statements is correct? Options are usually riskier than the underlying Options are usually safer than the underlying Call option holder has an obligation to buy the underlying Call option seller has a right to buy the underlying Short straddle is an option strategy that involves simultaneously selling a put and a call on the same stock with the same strike price, which is equal to the current stock price. What is the purpose of this strategy? What is the purpose of this strategy? To profit from large price deviations from the current price To profit from the lack of price deviations from the current price To profit from a large price increase To profit from a large price decrease Question 8 Consider the toss of a (loaded) coin. In a "good" outcome, punter (bettor) will receive 1 in 12 months. In a "bad" outcome she will not receive anything. The fair market price of this bet is 0.45 and current prevailing risk-free interest rate is 5%. What is the implied probability of a "good" outcome? Assume continuous compounding. 0.4223 0.4731 0.5269 0.5594