FIN4520
Practice Exam 2
Dr. Lucy Ackert
100 possible points
Formula sheet permitted (twosides of a sheet of paper, only formulas)
Part 1: Multiple Choice (10 questions at 3 points each)
Circle the correct answer.
If more than one answer is circled, the answer is incorrect.
1. What is the upper bound for the price of a onemonth European put option on a nondividend
paying stock when the stock price is $12, the strike price is $15, and the riskfree interest rate is
6% per annum?
a. $0.00
b. $2.93
c. $14.93
d. $15.00
e. None of the above.
2. A spread is an option trading strategy that involves taking a position in both calls and puts
on the same stock.
a. True
b. False
3. Most options exchanges use market makers to facilitate trading.
A market maker is an
individual who, when asked to do so, will quote both a bid and an offer price on the option.
a. True
b. False
1
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View Full Document4. Of the six inputs into the BlackScholes option pricing model, the option value is most
sensitive to the volatility so in using the model the most care should go into getting the best
estimate possible for the volatility (
σ
).
a. True
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 Spring '12
 LucyAckert
 Options, Strike price

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