Question Completion Status QUESTION 1 The maximum value of a put is A The stock price less the strike price B The strike price C The stock price D The strike price less the stock price 1 points QUESTION 2 On March 2, a Treasury bill expiring on April 20 had a bid discount of 5 86, and an ask discount of 5 80 What is the best estimate of the risk free rate for the option contract expires on April 21 A 5 86 B 6 11 C 6 14 D 5 83 1 points QUESTION 3 The following quotes were observed for options on a given stock on November 1 of a given year These are American calls and puts The stock price was 113 25 Calls Puts Strike Nov Dec Jan Nov Dec Jan 105 8 375 10 11 5 0 3125 1 25 2 110 4 375 7 125 8 25 0 9375 2 50 3 75 115 1 5 3 875 5 25 2 8125 4 75 4 75 What is the intrinsic value of the December 115 put A 1 75 B 4 75 C 3 875 D 0 00 1 points QUESTION 4 The following quotes were observed for options on a given stock on November 1 of a given year These are American calls and puts The stock price was 113 25 Calls Puts Strike Nov Dec Jan Nov Dec Jan 105 8 375 10 11 5 0 3125 1 25 2 110 4 375 7 125 8 25 0 9375 2 50 3 75 115 1 5 3 875 5 25 2 8125 4 75 4 75 What is the intrinsic value of the January 110 call A 0 00 B 3 25 C 3 75 D 8 25 1 points QUESTION 5 The following quotes were observed for options on a given stock on November 1 of a given year These are American calls and puts The stock price was 113 25 Calls Puts Strike Nov Dec Jan Nov Dec Jan 105 8 375 10 11 5 0 3125 1 25 2 110 4 375 7 125 8 25 0 9375 2 50 3 75 115 1 5 3 875 5 25 2 8125 4 75 4 75 What is the time value of the December 105 put A 7 00 B 1 25 C 0 00 D 8 25 1 points QUESTION 6 The following quotes were observed for options on a given stock on November 1 of a given year These are American calls and puts The stock price was 113 25 Calls Puts Strike Nov Dec Jan Nov Dec Jan 105 8 375 10 11 5 0 3125 1 25 2 110 4 375 7 125 8 25 0 9375 2 50 3 75 115 1 5 3 875 5 25 2 8125 4 75 4 75 What is the time value of the November 110 call A 0 00 B 1 125 C 3 25 D 4 375 1 points QUESTION 7 If a stock's variance of return increases, the price of a put option will A decline, then increase B decline C remain unchanged D increase 1 points QUESTION 8 If interest rates rise, the price of a call option will A decline, then increase B increase C decrease D remain unchanged 1 points QUESTION 9 A European call option on a stock priced at $50 has a price of $5 The present value of the exercise price of the option is $47 The stock is not expected to pay a dividend What must be the price of an identical put option on the same stock A $2 00 B $8 00 C $4 00 D $3 00 1 points QUESTION 10 For at the money stock options, put call parity requires that, for otherwise similar options, A puts sell for more than calls B puts sell for at least as much as calls C puts sell for the same price as calls D puts sell for less than calls 1 points QUESTION 11 Suppose you use put call parity to compute a European call price from the European put price, the stock price, and the risk free rate You find the market price of the call to be less than the price given by put call parity Ignoring transaction costs, what trades should you do A buy the put and the call and sell the risk free bonds and the stock B buy the stock and the risk free bonds and sell the put and the call C buy the call and the risk free bonds and sell the put and the stock D buy the put and the stock and sell the risk free bonds and the call 1 points QUESTION 12 In a binomial model, the values of u and d are A the inverse of the ratio of the up and down probabilities, respectively, and the risk free rate B one plus the return on the stock if it goes up and down, respectively C the return on the stock if it goes up and down, respectively D the normal probabilities of up and down movements, respectively 1 points QUESTION 13 Which of the following statements is TRUE I The binomial model assumes that investors are risk neutral II The binomial probabilities are probabilities if investors were risk neutral A Both I and II are not true B I C II D Both I and II are true 1 points QUESTION 14 Which of the following statements is TRUE I When pricing a put with the binomial model, the up and down probabilities are reversed II When pricing an American put with the binomial model, you must check for early exercise at each time point and stock price except the current one A II B I C Both I and II are true D Both I and II are not true 1 points QUESTION 15 Which of the following statements is TRUE I If the binomial model describes the real world, the combined actions of all investors will cause the market price to converge to the binomial price II The binomial model will give a higher price for an American call on a stock that pays no dividends than if that call is European A Both I and II are true B I C Both I and II are not true D II 1 points QUESTION 16 If the binomial model is extended to multiple periods for a fixed option life, which of the following adjustments must be made A the up and down factors and the risk free rate must be decreased B the up and down factors must be increased C the initial stock price must be proportionately reduced D the risk free rate must be increased 1 points QUESTION 17 Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent The risk free rate is 4 percent Assume a one period world What is the theoretical value of the European call with an exercise price of 80 A 8 00 B 4 39 C 5 13 D 5 36 1 points QUESTION 18 Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent The risk free rate is 4 percent Assume a two period world What is the theoretical value of the European call with an exercise price of 80 A 11 13 B 0 619 C 7 30 D 8 00 1 points QUESTION 19 In a one period binomial model with Su 49 5, Sd 40 5, p 0 8, r 0 06, S 45 and X 50, what is a European put worth A 1 79 B 9 50 C 5 00 D 2 17 1 points QUESTION 20 A stock priced at 50 can go up or down by 10 percent over two periods The risk free rate is 4 percent Which of the following is the correct price of an American put with an exercise price of 55 A 3 68 B 4 00 C 5 00 D 2 99 1 points

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Question Completion Status: QUESTION 1 The maximum value of a put is A. The stock price less the strike price B. The strike price C.

Question Completion Status:

QUESTION 1

The maximum value of a put is

	A.	The stock price less the strike price
	B.	The strike price
	C.	The stock price
	D.	The strike price less the stock price

1 points

QUESTION 2

On March 2, a Treasury bill expiring on April 20 had a bid discount of 5.86, and an ask discount of 5.80. What is the best estimate of the risk-free rate for the option contract expires on April 21?

	A.	5.86 %
	B.	6.11 %
	C.	6.14 %
	D.	5.83 %

1 points

QUESTION 3

The following quotes were observed for options on a given stock on November 1 of a given year. These are American calls and puts. The stock price was 113.25. Calls Puts Strike Nov Dec Jan Nov Dec Jan 105 8.375 10 11.5 0.3125 1.25 2 110 4.375 7.125 8.25 0.9375 2.50 3.75 115 1.5 3.875 5.25 2.8125 4.75 4.75 What is the intrinsic value of the December 115 put?

	A.	1.75
	B.	4.75
	C.	3.875
	D.	0.00

1 points

QUESTION 4

	A.	0.00
	B.	3.25
	C.	3.75
	D.	8.25

1 points

QUESTION 5

	A.	7.00
	B.	1.25
	C.	0.00
	D.	8.25

1 points

QUESTION 6

	A.	0.00
	B.	1.125
	C.	3.25
	D.	4.375

1 points

QUESTION 7

If a stock's variance of return increases, the price of a put option will

	A.	decline, then increase
	B.	decline
	C.	remain unchanged
	D.	increase

1 points

QUESTION 8

If interest rates rise, the price of a call option will

	A.	decline, then increase
	B.	increase
	C.	decrease
	D.	remain unchanged

1 points

QUESTION 9

A European call option on a stock priced at $50 has a price of $5. The present value of the exercise price of the option is $47. The stock is not expected to pay a dividend. What must be the price of an identical put option on the same stock?

	A.	$2.00
	B.	$8.00
	C.	$4.00
	D.	$3.00

1 points

QUESTION 10

For at-the-money stock options, put/call parity requires that, for otherwise similar options,

	A.	puts sell for more than calls.
	B.	puts sell for at least as much as calls.
	C.	puts sell for the same price as calls.
	D.	puts sell for less than calls.

1 points

QUESTION 11

Suppose you use put-call parity to compute a European call price from the European put price, the stock price, and the risk-free rate. You find the market price of the call to be less than the price given by put-call parity. Ignoring transaction costs, what trades should you do?

	A.	buy the put and the call and sell the risk-free bonds and the stock
	B.	buy the stock and the risk-free bonds and sell the put and the call
	C.	buy the call and the risk-free bonds and sell the put and the stock
	D.	buy the put and the stock and sell the risk-free bonds and the call

1 points

QUESTION 12

In a binomial model, the values of u and d are

	A.	the inverse of the ratio of the up and down probabilities, respectively, and the risk-free rate
	B.	one plus the return on the stock if it goes up and down, respectively
	C.	the return on the stock if it goes up and down, respectively
	D.	the normal probabilities of up and down movements, respectively

1 points

QUESTION 13

Which of the following statements is TRUE? I. The binomial model assumes that investors are risk neutral. II.The binomial probabilities are probabilities if investors were risk neutral.

	A.	Both I and II are not true.
	B.	I.
	C.	II
	D.	Both I and II are true.

1 points

QUESTION 14

Which of the following statements is TRUE?

I. When pricing a put with the binomial model, the up and down probabilities are reversed.

II. When pricing an American put with the binomial model, you must check for early exercise at each time point and stock price except the current one.

	A.	II
	B.	I
	C.	Both I and II are true.
	D.	Both I and II are not true.

1 points

QUESTION 15

Which of the following statements is TRUE?

I. If the binomial model describes the real world, the combined actions of all investors will cause the market price to converge to the binomial price.

II. The binomial model will give a higher price for an American call on a stock that pays no dividends than if that call is European.

	A.	Both I and II are true.
	B.	I
	C.	Both I and II are not true.
	D.	II

1 points

QUESTION 16

If the binomial model is extended to multiple periods for a fixed option life, which of the following adjustments must be made?

	A.	the up and down factors and the risk-free rate must be decreased
	B.	the up and down factors must be increased
	C.	the initial stock price must be proportionately reduced
	D.	the risk-free rate must be increased

1 points

QUESTION 17

Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. Assume a one-period world. What is the theoretical value of the European call with an exercise price of 80?

	A.	8.00
	B.	4.39
	C.	5.13
	D.	5.36

1 points

QUESTION 18

Consider a binomial world in which the current stock price of 80 can either go up by 10 percent or down by 8 percent. The risk-free rate is 4 percent. Assume a two-period world. What is the theoretical value of the European call with an exercise price of 80?

	A.	11.13
	B.	0.619
	C.	7.30
	D.	8.00

1 points

QUESTION 19

In a one-period binomial model with Su = 49.5, Sd = 40.5, p = 0.8, r = 0.06, S = 45 and X = 50, what is a European put worth?

	A.	1.79
	B.	9.50
	C.	5.00
	D.	2.17

1 points

QUESTION 20

A stock priced at 50 can go up or down by 10 percent over two periods. The risk-free rate is 4 percent. Which of the following is the correct price of an American put with an exercise price of 55?