with parameters as given. The risk-free interest rate for all cases should be as
ID: 2668324 • Letter: W
Question
with parameters as given. The risk-free interest rate for all cases should be assumed to be 6%. Assume the stocks on which these options are written pay no dividends.I.
Put T X s Price of Option
0.5 50 0.20 10
B 0.5 50 0.25 10
Which put option is written on the stock with the lower price?
(1) A
(2) B
(3) Not enough information
II.
Put T X s Price of Option
A 0.5 50 0.2 10
B 0.5 50 0.2 12
Which put option must be written on the stock with the lower price?
a. A
b.B
c. Not enough information
III.
Call S X s Price of Option
A 50 50 0.20 12
B 55 50 0.20 10
Which call option must have the lower time to expiration?
a. A
b. B
c. Not enough information
IV.
Call T X S Price of Option
A 0.5 50 55 10
B 0.5 50 55 12
Which call option is written on the stock with higher volatility?
a. A
b. B
c. Not enough information
Call T X S Price of Option
A 0.5 50 55 10
B 0.5 55 55 7
Which call option is written on the stock with higher volatility?
a. A
b. B
c.Not enough information
Explanation / Answer
(I): A (II): B (III): B (IV): B (V): A
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