5. Lower volatility results in __________ Put Option prices and ______ Call Opti
ID: 2712263 • Letter: 5
Question
5. Lower volatility results in __________ Put Option prices and ______ Call Option Prices.
a) Higher, Higher
c) Lower, Lower
d) Lower, Higher
6. You need a barrel of oil next month. You could either wait and buy the oil in a month, you could enter into a futures contract to buy oil at the current futures price $82, or you can pay $3 for a call option that gives you the right to buy oil for $80. The current spot price is $78. The risk free rate is 1%, and carrying costs are $3. If the price ends up being $81 next month, then you should have ______________.
a)Waited to buy the oil
b)Entered into a futures contract
d) Bought the oil today and held it
8. Which of the following events is likely to increase the value of put options on the common stock of GCC Company?
a)An increase in GCC's stock price.
c)A decrease in the amount of time until the option expires.
d)A decrease in the risk-free rate.
Explanation / Answer
5. Answer :- d) Lower, Higher.
6. Answer :- b) Entered into a futures contract.
8. Answer :- c) A decrease in the amount of time until the option expires.
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