Suppose you buy a call option contract on October gold futures with a strike price of $900 per ounce. Each contract is for the delivery of 100 ounces. What happens if you exercise when the October futures price is $920?

a.

You receive $2000 payment and obtain a short position in the October gold futures.

b.

You obtain a long position in the October gold futures with receiving any payment.

c.

You make $2000 payment and obtain a short position in the October gold futures.

d.

You receive $2000 payment and obtain a long position in the October gold futures.

A stock price is currently $20 and the stock price changes following a geometric Brownian motion. Assume that the expected return from the stock is 10% and its volatility is 20%. What is the probability distribution (i.e. the mean and the variance) for the stock's log price in two years time?

a.

mean= 0.16, variance = 8%

b.

mean=3.16, variance = 28.2%

c.

mean=3.16, variance = 8%

d.

mean=3.88, variance = 28.2%

Buying a bull spread is equivalent to .

a.

buying a strangle.

b.

buying a bear spread.

c.

writing a straddle

d.

writing a bear spread.