Question

Which of the following option is false? Select the most suitable answer. Select one:

a. The European put price plus the stock price must equal the European call price plus the present value of the strike price.

b. For American options, put-call parity provides an upper and a lower bound for the difference between call and put prices.

c. For American options without dividend payment, the difference between call and put prices should be higher than or equal to the difference between stock price and strike price.

d. The intrinsic value of an option is always lower than the option premium. e. Call option writer has limited profit.

Answer #1

**C) For american options without dividend payment, the
call and put prices should be higher than or equal to the
difference between stock price and strike price.**

Explanation: Apart from the above Option, rest all are true.

Option 5 is true, Maximum profit which can be earned by any option writer is limited to the option premium.

Option 2 is true, Put call parity provides an upper and lower bound for difference between put and call prices.

Option 4 is true, Intrinsic value is always less than option premium. This is because, if the intrinsic value is more than Option premium, then the option buyer will earn immediate profit by entering into the transaction.

Option 1 is true, Put and call parity

present value of strike price + call = stock + put

The European put price plus the stock price must be __________
(lower, equal, or higher) the European call price plus the
__________ (present or future) value of the strike price.
3.A European put option is always worth _______________ (less
than, equal, or more than) the present value of the strike price. A
European call option is always worth ________________ (less than,
equal, or more than) the stock price. An American call option is
always worth ______________ (less than, equal, or...

Which of the following statements is true?
If interest rate is positive and the stock pays no dividends
then it is better to keep an American call option alive than to
exercise it even if it is far in the money
It never makes sense to exercise an American put option
early
Put-call parity holds for American options, just like it does
for European options
If a European option is priced below its lower bound, then the
arbitrage includes borrowing...

For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
the following is true?
A) Before expiration, only in-the-money options can have
positive time premium.
B) If you have a portfolio of protected put, you can replicate
that portfolio by long a call and hold certain amount of risk-free
bond.
C) Since both the call and the put are risky assets, the
risk-free interest rate...

For a European call option and a European put option on the same
stock, with the same strike price and time to maturity, which of
the following is true?
A) When the call option is in-the-money and the put option is
out-of-the-money, the stock price must be lower than the strike
price.
B) The buyer of the call option receives the same premium as the
writer of the put option.
C) Since both the call and the put are risky...

Use the following option prices for options on a stock index
that pays no dividends to answer questions. The options have three
months to expiration, and the index value is currently 1,000.
STRIKE (K)
CALL PRICE
PUT PRICE
975
77.716
43.015
1000
64.595
X
1025
53.115
67.916
a. Using put-call parity, what is the
implied continuously compounded interest rate?
Using put-call parity, what is the correct price for the put
option with a strike of
1,000? (i.e., what is X?)

Which of the pricing
relationship below is correct?
A call option has no
value at expiration if the stock price is greater than the strike
price.
Put options with a
lower strike price are worth at least as much as put options with a
higher strike price.
The net profit at
expiration for a put is the strike price plus the price of the
stock at expiration minus the price of the put at expiration.
The net profit at
expiration...

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

A trader who is short a European call option:
A) Has the same rights as a long European call option holder
B) Profits when the spot price at expiry is greater than the
exercise price. There is no limit to potential profit
C) Profits when the spot price at expiry is less than the
exercise price. The maximum profit is equal to the option
premium
D) At formation of the contract, will have received more for the
option than the...

a. As the stock’s price decreases, a call
option on the stock ___________ in value.
b. As the stock’s price decreases, a put
option on the stock ___________ in value.
c. Given two put options on the same
stock with the same time to expiration, the put with the lesser
strike price will cost ________ than the put option with the lower
strike price.
d. Given two call options on the same stock
with the same time to expiration, the...

i. What is the difference between an American option and a
European option?
ii. Does the holder of an option have to exercise
it?
iii. Explain why the following statement is true or
false.
“A call seller is obliged to buy the underlying share at
the exercise price.”
iv. Explain how an increase in the strike price
affect the value of put and call written on the stock.

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