Question 1) An investor is speculating with a long call position what is the most likely preference of the investor relative to a change of the rho?
A - Increase
B - Stay constant
C - Indifferent
Question 2) The binomial price will theoretically equal the Black and Scholes price under which of the following condition?
1. when the option is out-of-the-money
2. when the option is at-the-money
3. when the option is in-the-money
4. when the number of time periods is large
Question 3) What will happen when the volatility is 0 in the Black and Scholes model ?
1. the option price converges to the intrinsic value
2. the option price converges to either zero or the lower bound
3. none are correct
4. the option automatically expires out of the money
Question 4) The stock price is $23, the risk-free rate is 95, variance is 15%, exercise price is $20 and time to expiration is .5. No dividends are expected. To construct a riskless hedge, the number of puts per 100 shares purchased is
A. 758
B. 233
C. 342
D. -80
Question 5) Which of the following statements about the delta is not true?
A. none are correct
B. it converges to zero or one at expiration
C. it ranges from zero to one
D. it changes slowly near expiration if the option is at-the-money