Question :
41.You notice that the price of a one-year put option, : 1325795
41.You notice that the price of a one-year put option, with a $60 strike price, is $1. The current price of the underlying stock is also $58. What should the price of a one-year call option be with a strike price of $60? Assume that the interest rate on a one-year risk free bond is 10%.
a.$0
b.$2
c.$2.45
d.$4.45
42.Which of the following will cause a decrease in the value of the respective derivative?
a.an increase in volatility for a call option
b.a decrease in volatility for a call option
c.an increase in the length to expiration for a call option
d.an increase in the length to expiration for a put option
43.You have written a call option on 1 share of Z stock that is worth $15. You expect the price of the stock to either move to $20 or $10 over the next year. How many shares of Z stock should you own to perfectly hedge your position on the call option? The strike price on the option is $15.
a.2 shares
b.1 share
c..5 shares
d.none of the above
44.You have written a call option on 1 share of Z stock that is currently worth $15. You expect the price of the stock to either move to $20 or $10 over the next year. If the one-year risk-free interest rate is 10% and the strike price on the option is $15, what should have been the proceeds of the option?
a.$5.45
b.$2.95
c.$.45
d.$0
45.You have written a call option on 1 share of A stock that is currently worth $30. You expect the price of the stock to either move to $40 or $20 over the next year. If the one-year risk-free interest rate is 5% and the strike price on the option is $25, what should have been the proceeds of the option?
a.$15.72
b.$8.22
c.$.72
d.$0
46.You need to find the price of a European call option on a stock that does not pay dividends. The current price of the shares are $50 and the strike price on the option is $50. The expiration date is 3 months from now and the risk-free rate applicable is 10% per annum. If the standard deviation of the returns on the stock is 20%, what is the price of a single call option?
a.$6.53
b.$2.91
c.$2.65
d.$2.00
47.According to the Black-Scholes option pricing model which of the following has the effect of decreasing the value of a call option?
a.an increase in the stock price
b.a higher strike price
c.an increase in the standard deviation of the underlying asset price returns
d.an increase in the risk-rate
48.You need to find the price of a European call option on a stock that does not pay dividends. The current price of the shares are $100 and the strike price on the option is $80. The expiration date is 9 months from now and the risk-free rate applicable is 8% per annum. If the standard deviation on the returns on the stock is 50%, what is the price of a single call option?
a.$19.71
b.$27.20
c.$30.39
d.$36.65
49.When managers of a firm are compensated in options, managements interests may not be aligned with that of shareholders because
a.managers may have incentives to increase the riskiness of the firm.
b.managers would rather be paid in cash.
c.the taxes that are paid on the option compensation buffer that form of compensation from being aligned with the shareholders interests.
d.none of the above.
50.Which of the following is issued by the firm that grants investors the right to buy shares of stock at a fixed price, for a given period of time?
a.stock futures
b.put options
c.warrants
d.none of the above
