Question

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 rate?

6. Does market price of a put option decrease or increase in the volatility of the underlying asset?

Answer #1

Assuming all variables given are increasing

Ans 1) Price of put will increase

Ans 2) Price of put will increase

Ans 3) Price of put will decrease

Ans 4) Put price will increase

Ans 5) Put price will decrease

Ans 6) Price of put will increase

Assuming all variables given are decreasing

Ans 1) Price of put will decrease

Ans 2) Price of put will decrease

Ans 3) Price of put will increase

Ans 4) Put price will decrease

Ans 5) Put price will increase

Ans 6) Price of put will decrease

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

1. You buy a put option with strike price of $25. Currently, the
market value of the underlying asset is $30. The put option premium
is $3.25. Assume that the contract is for 150 units of the
underlying asset. Assume the interest rate is 0%. a. What is the
intrinsic value of the put option? b. What is the time value of the
put option? c. What is your net cash flow if the market value of
the options’ underlying...

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...

Please find the price of the put option using the simulated
stock prices. The put option matures in 1 year and has exercise
price $30. The price of the underlying stock is $30 today. The
average annual stock return is 5%. The annualized stock volatility
is 15%. The interest rate on the risk-free asset is 5% per year.
Please simulate the end of year stock price for 1000 times.

You are attempting to value a put option with an exercise price
of $102 and one year to expiration. The underlying stock pays no
dividends, its current price is $102, and you believe it has a 50%
chance of increasing to $121 and a 50% chance of decreasing to $83.
The risk-free rate of interest is 10%. Calculate the value of a put
option with exercise price $102.

A European put option has an exercise price of £100. It has one
year to expiration. The underlying stock does not pay any dividends
and has a current price of £90. This price has a 50% chance of
increasing to £110 and a 50% chance of decreasing to £70. The risk
free rate of interest is 1% p.a. Calculate the price of the put
option using the two state stock price model applying the
replicating portfolio method.

You are attempting to value a put option with an exercise price
of $108 and one year to expiration. The underlying stock pays no
dividends, its current price is $108, and you believe it has a 50%
chance of increasing to $122 and a 50% chance of decreasing to $94.
The risk-free rate of interest is 11%. Calculate the value of a put
option with exercise price $108. (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)

You are attempting to value a put option with an exercise price
of $108 and one year to expiration. The underlying stock pays no
dividends, its current price is $108, and you believe it has a 50%
chance of increasing to $122 and a 50% chance of decreasing to $94.
The risk-free rate of interest is 11%. Calculate the value of a put
option with exercise price $108. (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)

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

You are to calculate a put option (European) that has 3 months
left to expiration. The underlying stock does NOT pay dividends and
both the stock price and exercise price happen to be equal at $50.
If the risk free rate is currently 10% per annum, and the
volatility is assessed at 30% per annum, what is the price of the
European put option?

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