1. The difference between an American call and a European call is that the American call:
has a fixed exercise price while the European exercise price can vary within a small range.
is a right to buy while a European call is an obligation to buy.
has an expiration date while the European call does not.
can be exercised at any time up to and including the expiration date while the European call can only be exercised on the expiration date.
is written on 100 shares of the underlying stock while the European call is based on 10 shares of the underlying stock.
2. Assume that the % expected return for security A and the market M for a good, normal and bad economy (probabilities .2,.6,.2) are 18, 14, and 8 for A and 16, 22, and 12 for M. Also assume that you invest 70% in A and 30% in M. Compute the standard deviation for A.
3.01
5.92
4.12
3.2