Hull_OFOD9e_MultipleChoice_Questions_Only_Ch13

# Hull_OFOD9e_MultipleChoice_Questions_Only_Ch13 - Hull...

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Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 13: Introduction to Binomial Trees Multiple Choice Test Bank: Questions 1. The current price of a non-dividend-paying stock is \$30. Over the next six months it is expected to rise to \$36 or fall to \$26. Assume the risk-free rate is zero. An investor sells call options with a strike price of \$32. Which of the following hedges the position? A. Buy 0.6 shares for each call option sold B. Buy 0.4 shares for each call option sold C. Short 0.6 shares for each call option sold D. Short 0.6 shares for each call option sold 2. The current price of a non-dividend-paying stock is \$30. Over the next six months it is expected to rise to \$36 or fall to \$26. Assume the risk-free rate is zero. What is the risk-neutral probability of that the stock price will be \$36? 3. The current price of a non-dividend-paying stock is \$30. Over the next six months it is expected to rise to \$36 or fall to \$26. Assume the risk-free rate is zero. An investor sells call options with a strike price of \$32. What is the value of each call option? 4. The current price of a non-dividend-paying stock is \$40. Over the next year it is expected to rise to \$42 or fall to \$37. An investor buys put options with a strike price of \$41. Which of the following is necessary to hedge the position?

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