1. An investor buys a European put on a share for $1. The stock price is currently $21 and the strike price is $17. When does the investor make a profit?
a. Price is less than $20
b. Price is less than $16
c. Price is less than $17
2. Suppose a European call option to buy a share for $22.00 costs $1.50. The stock currently trades for $19.00. If the option is held to maturity under what conditions does the holder of the option make a profit? Note: ignore time value of money.
a. When the price of the stock is greater than $23.50.
b. When the price of the stock is greater than $20.50.
c. When the price of the stock is greater than $22.00.
3. The market price of ZYX stock has been volatile and you expect that volatility to continue for a few weeks based on recent news. Due to this belief you decide to purchase calls and puts to manage your exposure. You purchase a one-month call option with a strike price of $25 and an option price of $1.30. You also purchase a one-month put option with a strike price of $25 and an option price of $0.50. What will be your total profit or loss on these option positions if the stock price is $26.0 on the day the options expire?
A.$100
B. -$80
C.-$180
4. Use two-state option pricing model to find the value of a call option and the intrinsic value given the following parameters:
T-bills yield: 4.0 pct
Current stock price: $44.00
No possibility stock will be worth less this amount in one year: $42.00
Exercise Price: $34.00
A. Value of call = $9.31, Intrinsic Value = $10.00
B. Value of call = $11.31, Intrinsic Value = $2.00
C. Value of call = $11.31, Intrinsic Value = $10.00
5.
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Given the following option quote information:
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Calls
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Puts
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Option and NY Close
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Expiration
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Strike Price
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Volume
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Last
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Volume
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Last
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XYZ
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February
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108
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85
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7.55
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40
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0.60
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March
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108
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61
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8.55
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22
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1.55
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May
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108
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22
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10
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11
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2.85
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August
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108
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3
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12.5
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3
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4.70
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The current stock price is $114.00 and the stock price on the expiration date is $141.00. How much is your options investment worth? (ignore commissions)
A. $27,000.00
B. $330.00
C. $33,000.00
6. Given the following parameters use put-call parity to determine the price of a put option with the same exercise price.
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Current stock price:
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$48.00
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Call option exercise price:
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$50.00
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Sales price of call options:
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$3.80
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Months until expiration of call options:
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3
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Risk free rate:
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2.6 percent
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Compounding:
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continuous
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A. Price of put option = $5.48
B. Price of put option = $6.13
C. Price of put option = $4.52
7. Given the following parameters use risk-neutral valuation to value a call option.
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Current stock price:
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$65.00
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Stock will increase or decrease next year by:
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15 pct.
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Call Option strike price:
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$60.00
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Time to expiration:
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1 year
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Risk free rate:
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8 pct.
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A. Value of call: $9.44
B. Value of call: $10.47
C. Value of call: $13.66
8. A bond has 4 years to maturity, a coupon of 6 percent paid annually and currently sells at par. What is the duration of the bond?
A. 4.6 Years
B. 3.67 Years
C. 3.82 Years
9. You have entered into a forward contract with the following parameters:
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Bond:
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5 year, zero coupon bond
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Issuance:
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Will be issued in 1 year
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Face Value:
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$1000
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1 year spot rate:
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3 pct.
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10 year spot rate:
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6 pct.
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A. Forward price = $726.11
B. Forward price = $769.68
C. Forward price = $704.96
10. Use Black Scholes to Value the put and call given the following criteria. The stock price six months from the expiration of an option is $52.00, the exercise price of the option is $49, the risk free interest rate is 10 percent per annum, and the volatility is 20% per annum.
A. c = 6.26, p = 0.88
B. c = 4.10, p = 1.56
C. c = 3.00, p = 2.29