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Exam 26: Options and More

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Question 31

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You purchase both a call option and a put option on a stock. Both options have a strike price of $50 and have the same expiration. Develop a payoff table for this combination, using stock prices from $0 to $150, in increments of $25.

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Question 32

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An investor can create a synthetic call option by

A) taking a long position in a stock, simultaneously buying a put option on the stock, and investing the present value of the strike price in Treasury securities.
B) taking a long position in a stock, and simultaneously buying a put option on the stock.
C) short selling the stock and using the proceeds to buy a put option on the stock and investing the rest in Treasury securities.
D) borrowing money at the risk-free rate and using the funds to invest in the stock itself.

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Question 33

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The value of the right to exercise an American call option early, assuming the underlying stock pays no dividends, is

CUMULATIVE NORMAL DISTRIBUTION TABLE -Refer to the information above. A stock is currently selling for $60. The stock pays no dividends. An American call option on the stock has a strike price of $55 and has 3 months to Expiration. The standard deviation of the continuously compounded rate of return of the stock Is 30%, and the annualized risk-free rate is 3%. Use the Black-Scholes formula to calculate the Fair value of this option.

What is the difference between writing a covered call and writing a naked call? Which one is riskier? Why?

Using 5 years of historical daily stock returns, you have determined the standard deviation of the returns to be 1.3%. This means that the annual standard deviation of the returns (rounded To the nearest tenth of a percent) is

The price of a call option will be higher,

Explain how you could duplicate a short position in a stock by using options.

Assume an investor buys a call option with strike price, , and sells a call option on the same stock with a strike price, Assume, too, that If the stock price, is greater than at expiration, which of the following represents the total payoff to the investor?

CUMULATIVE NORMAL DISTRIBUTION TABLE -Refer to the information above. Calculate the value of a call option on a stock that is currently selling for $88 if the strike price is $90, the option expires in 3 months, the implied volatility of the underlying stock returns is 22%, and the annualized risk-free rate is 4%.

A certain stock is selling for $43.10. What is the minimum amount for which a call option on the stock with a strike price of $40 should sell?

Which of the following statements about put options is true?

Which of the following would be referred to as a straddle?

List five differences between regular stock options and employee stock options (ESOPs).

The price of a call option will be lower,

The change in the price of the option as the time to expiration changes is called

Indicate how the indicated change in each of the inputs in the table below will affect the value of a call option, all else equal. Use "+" for increase, "-" for decrease, and "0" for no change.

You purchased a stock for $60 a share and simultaneously wrote a covered call with a strike price of $70 on the stock. The call was selling for $0.50 at that time. Just prior to expiration, the Stock was selling for $72 a share. What was your gain or loss per option share on this Transaction?

CUMULATIVE NORMAL DISTRIBUTION TABLE -Refer to the information above. A stock is currently selling for $60. The stock pays no dividends. A call option on the stock has a strike price of $55 and has 3 months to expiration. The implied volatility is 30%, and the annualized risk-free rate is 3%. What is the option's Hedge ratio, rounded to the nearest hundredth?

Inmar Corporation is a mail-order company that imports a lot of its products from Switzerland. The firm must place its order six months in advance and must pay upon Delivery. If the CFO is concerned that the dollar will depreciate relative to the Swiss franc, she Could execute a hedge by