options 2 - Determine the possible exercise prices for the...

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Old Exam Problems - Options Page 2 of 5 Pages 4. Assume that a share of stock has a current price of $50. Also assume that a call option on this stock has 1 year to maturity, a standard deviation of 0.20, an exercise price of $50, and that the appropriate 1-year interest rate is 6.00%. What is the price of this call option using the Black-Scholes option-pricing model? (A cumulative normal probability table is at the end of this homework assignment -- you should round off your answers for d 1 and d 2 to two decimal places.) A. $2.04 B. $3.12 C. $4.27 D. $5.49 E. None of the above. 5. Assume that an investor buys a put for $3.50 and an equivalent call for $1.25, where they both have the same exercise price and expiration date. At expiration, the investor will net a profit of $7.75 when the stock price closes at $65.00.
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Unformatted text preview: Determine the possible exercise prices for the call and the put. A. $52.50 or $77.50 B. $50.30 or $72.30 C. $57.40 or $67.40 D. $47.50 or $82.50 6. Assume that a stock is currently selling for $50. The stock price could go up by 10% or fall by 2% each month. The monthly interest rate is 1% (periodic rate). Calculate the price of a call option on the stock with an exercise price of $40 and a maturity of two months. (use the binomial method) A. $12.66 B. $10.79 C. $11.47 D. $ 9.99 E. $13.84 7. Assume that a stock is currently selling at a price of $75.00 in the open market. A put, with an exercise price of $77.00, sells for $2.00. Determine what risk-free rate would be implied by put-call parity if the equivalent call for the same stock sells for $1.75. A. 4.26% B. 6.66% C. 5.48% D. 3.07% E. 2.33%...
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