Question

1.
American put option price increase if time to expiration gets
extended.

True

or

False

2. American put option price will increase if risk free rate
decrease.

True

or

False

3. American put option price increase if volatility of
underlying stock price goes down.

True

or

False

4. For a non dividend paying underlying stocks, american call
options can be more expensive than european call options that are
equal in other terms.

True

or

False

Answer #1

1.False.

When time to expiration gets extended the American put option will become more valuable.American put option becomes more valuable when the price of the underlying stock decreases.

2.True:

when the risk free interest rate decrease the American put option price will increase.When the interest rate decreases the price of the call option decreases where as the price of the put option increases.

3.False.

Higher the volatility of the underlying stock higher is the price of both put and call options.Here it is given that the volatility of underlying stock decreases thus the American put option price will decrease

4.False:

For a non dividend paying underlying stocks,American call options and European call options are the same because it's not optimal to exercise American call option before the maturity

1. Does market price of a put option decrease or increase in the
exercise price?
2. Does market price of a put option decrease or increase in the
time to expiration?
3. Does market price of a put option decrease or increase in the
price of underlying asset?
4. Does market price of a put option decrease or increase in the
dividend payouts of underlying asset?
5. Does market price of a put option decrease or increase in the
interest...

1. “Volatility smile” is a graph that plots implied volatility
against time to expiration. (True / False)
2.Which of the Greeks is greater than zero?
a. Delta of a call option
b. Elasticity of a put option
c. Gamma of the underlying stock
c. Vega of the underlying stock
3. Trading shares of the underlying stock will affect the delta
of a portfolio. (True / False)
4. in a “volatility smile”, options have the same time to
expiration and the...

True or false: It is never optimal to exercise an
American put option (on a non-dividend paying
stock) early.
Group of answer choices
True
False

Consider an option on a non-dividend-paying stock when the
stock is $ 30, the exercise price is $29. The risk –free rate is 5%
per annum, the volatility is 25% per annum, and the time to
maturity is four months.
(a) What is the price of the option if it is European
call?
(b) What is the price of option if it is an American
call?
(c) What is the price of the option if it is a European
put?

1:Consider a European call option on a stock with current price
$100 and volatility 25%. The stock pays a $1 dividend in 1 month.
Assume that the strike price is $100 and the time to expiration is
3 months. The risk free rate is 5%. Calculate the price of the the
call option.
2: Consider a European call option with strike price 100, time
to expiration of 3 months. Assume the risk free rate is 5%
compounded continuously. If the...

3.3 In the Black-Scholes option-pricing model, if volatility
increases, the value of a call option will increase but the value
of the put option will decrease. (True / False)
3.4 The Black-Scholes option pricing model assumes which of the
following?
Jumps in the underlying price
Constant volatility of the underlying
Possibility of negative underlying price
Interest rate increasing as option nears expiration

A call option with 1 month to expiration currently sells for
$0.70. A put option with the same expiration sells for $1.10. The
options are European style. The risk-free rate is 3 percent per
year and the strike price of both options is $17.50. What is the
current stock price?
Select one:
a. $17.06
b. $17.63
c. $17.29
d. $17.86
e. $16.87

The strike price for a European call and put option is $56 and
the expiration date for the call and the put is in 9 months. Assume
the call sells for $6, while the put sells for $7. The price of the
stock underlying the call and the put is $55 and the risk free rate
is 3% per annum based on continuous compounding. Identify any
arbitrage opportunity and explain what the trader should do to
capitalize on that opportunity....

Consider a European call option and a European put option on a
non dividend-paying stock. The price of the stock is $100 and the
strike price of both the call and the put is $104, set to expire in
1 year. Given that the price of the European call option is $9.47
and the risk-free rate is 5%, what is the price of the European put
option via put-call parity?

Using the Black-Scholes Option Pricing Model, what is
the maximum price you should pay for a European call options on a
non-dividend paying stock when the stock price is GHS70.00, the
strike price GHS75.00, with a risk-free rate of 6% per year and a
volatility 19% per year. The time to expiration is half a year?
(7marks)
Using your answer above how many call options must you buy in
order to create a perfect hedge given that you currently...

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