1. Option exercise values can be positive or negative.
True or flase
2. In call and put options, the option premium fluctuates similar to the forward price in forwards, and brings the sellers (supply) and buyers (demand) into equilibrium.
true or false
3. One puts or calls are initiated; the writers have no further potential to obtain a positive cash flow.
True or false
4. Calculate the payoff at expiration for a put holder on an option on an underlying Eurodollar LIBOR rate for a 180-day time deposit if the annual rate at expiration is 6.5 %. The exercise rate is 7.0 %, the notional principal is $10,000,000, the option it is settled in cash but not at expiration as FRAs but at the end of the period covered by the time deposit.
$0
$20,000
$21,250
$22,500
$25,000