02 Jan Use Black Scholes
Question 1
10 / 10 pts
An investor buys a European put on a share for $3. The stock price is currently $42 and the strike price is $40. When does the investor make a profit?
Price is less than $39
Price is less than $40
Price is less than $37
Question 2
10 / 10 pts
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.
When the price of the stock is greater than $22.00.
When the price of the stock is greater than $20.50.
When the price of the stock is greater than $23.50.
Question 3
0 / 10 pts
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 $24.60 on the day the options expire?
-$180
Take a look at the profits from your put and call positions and not the current value of the position.
-$140
$40
Question 4
10 / 10 pts
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: 3.8 pct.
Current stock price: $25.00
No possibility stock will be worth less this amount in one year: $22.00
Exercise Price: $12.00
Value of call = $10.44, Intrinsic Value = $13.00
Value of call = $13.44, Intrinsic Value = $3.00
Value of call = $13.44, Intrinsic Value = $13.00
Question 5
0 / 10 pts
Given the following option quote information:
Calls
Puts
Option and NY Close
Expiration
Strike Price
Volume
Last
Volume
Last
XYZ
February
112
85
7.55
40
0.60
March
112
61
8.55
22
1.55
May
112
22
10
11
2.85
August
112
3
12.5
3
4.70
The current stock price is $114.00 and the stock price on the expiration date is $120.00. How much is your options investment worth? (ignore commissions)
$80.00
Incorrect. How many shares does each contract represent? You need to go review that.
$6,000.00
$8,000.00
Question 6
10 / 10 pts
Given the following parameters use put-call parity to determine the price of a put option with the same exercise price.
Current stock price: $48.00
Call option exercise price: $50.00
Sales price of call options: $3.80
Months until expiration of call options: 3
Risk free rate: 2.6 percent
Compounding: continuous
Price of put option = $6.13
Price of put option = $4.52
Price of put option = $5.48
Question 7
10 / 10 pts
Given the following parameters use risk-neutral valuation to value a call option.
Current stock price: $73.00
Stock will increase or decrease next year by: 15 pct.
Call Option strike price: $70.00
Time to expiration: 1 year
Risk free rate: 8 pct.
Value of call: $8.19
Value of call: $12.92
Value of call: $9.90
Question 8
0 / 10 pts
A bond has 4 years to maturity, a coupon of 3 percent paid annually and currently sells at par. What is the duration of the bond?
3.83 years
3.91 years
The problem states coupons are paid annually no semiannually
4.30 years
Question 9
0 / 10 pts
You have entered into a forward contract with the following parameters:
Bond: 5 year, zero coupon bond
Issuance: Will be issued in 1 year
Face Value: $1000
1 year spot rate: 3 pct.
10 year spot rate: 6 pct.
Forward price = $704.96
Forward price = $726.11
Forward price = $769.68
Incorrect. You appear to have calculated the current bond price using a 5 year period instead of the correct 6 year period (5 year bond issued one year from now).
Question 10
0 / 10 pts
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 $13.50, the exercise price of the option is $13, the risk free interest rate is 10 percent per annum, and the volatility is 20% per annum.
c = 0.50, p = 0.63
c = 1.09, p = 0.44
Incorrect, you appear to have switched K and S when calculating Ke-rT (the-rT are exponents)
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