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1 | |
Relative to the underlying stock, a call option always has: |
| | A) | A higher beta and a higher standard deviation of return |
| | B) | A lower beta and a higher standard deviation of return |
| | C) | A higher beta and a lower standard deviation of return |
| | D) | A lower beta and a lower standard deviation of return |
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2 | |
The option delta is calculated as the ratio of: |
| | A) | The spread of possible share prices to the spread of possible option prices |
| | B) | The share price to the option price |
| | C) | The spread of possible option prices to the spread of possible share prices |
| | D) | The option price to the share price |
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3 | |
Suppose Ann's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5% (periodic rate). [Use risk-neutral valuation] |
| | A) | $20.00 |
| | B) | $8.57 |
| | C) | $9.52 |
| | D) | $13.10 |
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4 | |
The delta of a put option is always equal to: |
| | A) | the delta of an equivalent call option |
| | B) | the delta of an equivalent call option with a negative sign |
| | C) | the delta of an equivalent call option minus one |
| | D) | none of the above |
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5 | |
If the standard deviation of the continuously compounded annual returns (? ) on the asset is 40%, and the time interval is a year, then the upside change is equal to: |
| | A) | 88.2% |
| | B) | 8.7% |
| | C) | 63.2% |
| | D) | 49.2% |
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6 | |
If the standard deviation of continuously compounded annual returns on the asset is 40% and the interval is a year, then the downside change is equal to : |
| | A) | 27.4% |
| | B) | 53.6% |
| | C) | 33.0% |
| | D) | 38.7% |
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7 | |
If the interest rate is 10%, the upside change is +25% and the downside change is -20%. Calculate the risk-neutral probability of upside change. |
| | A) | 0.5 |
| | B) | 0.6667 |
| | C) | 0.75 |
| | D) | none of the above. |
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8 | |
If the interest rate is 12%, the upside change is 20% and the downside change is -10%, calculate the risk-neutral probability of upside change. |
| | A) | 0.733 |
| | B) | 0.5 |
| | C) | 0.1 |
| | D) | none of the above. |
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9 | |
A stock is currently selling for $50. The stock price could go up by 10% or fall by 5% each month. The monthly interest rate is 1% (periodic rate). Calculate the price of a European put option on the stock with an exercise price of $55 and a maturity of two months. (use the two-stage binomial method) |
| | A) | $5.10 |
| | B) | $2.77 |
| | C) | $4.78 |
| | D) | none of the above. |
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10 | |
An European call option with an exercise price of $50 has a maturity (expiration) of six months, stock price of $54 and the instantaneous variance of the stock returns 0.64. The risk-free rate is 9.2%. Calculate the value of d2 (approximately). |
| | A) | +0.0656 |
| | B) | -0.0656 |
| | C) | +0.5656 |
| | D) | -0.5656 |
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11 | |
The Black-Scholes OPM is dependent on which five parameters? |
| | A) | Stock price, exercise price, risk free rate, beta, and time to maturity |
| | B) | Stock price, risk free rate, beta, time to maturity, and variance |
| | C) | Stock price, risk free rate, probability, variance and exercise price |
| | D) | Stock price, exercise price, risk free rate, variance and time to maturity |
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12 | |
If the volatility (variance) of the underlying stock increases then the: [Assume everything else remaining the same] |
| | A) | value of the put option increases and that of the call option decreases |
| | B) | value of the put option decreases and that of the call option increases |
| | C) | value of both the put option and the call option increases |
| | D) | value of both the put option and the call option decreases |
| | E) | none of the above |
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13 | |
If the strike price increases then the: [Assume everything else remaining the same] |
| | A) | value of the put option increases and that of the call option decreases |
| | B) | value of the put option decreases and that of the call option increases |
| | C) | value of both the put option and the call option increases |
| | D) | value of both the put option and the call option decreases |
| | E) | none of the above |
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14 | |
The value of N(d) in the Black-Scholes model can take any value between: |
| | A) | -1 and + 1 |
| | B) | 0 and +1 |
| | C) | -1 and 0 |
| | D) | none of the above |
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15 | |
Which of the following statements regarding American puts is/are true? |
| | A) | An American put can be exercised any time before expiration |
| | B) | An American put is always more valuable than an equivalent European put |
| | C) | multi-period binomial model can be used to value an American put |
| | D) | all of the above |
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