4520-exam2-practice

4520-exam2-practice - 1 FIN4520 Practice Exam 2 Dr. Lucy...

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FIN4520 Practice Exam 2 Dr. Lucy Ackert 100 possible points Formula sheet permitted (two-sides 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 one-month European put option on a nondividend- paying stock when the stock price is $12, the strike price is $15, and the risk-free 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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4. Of the six inputs into the Black-Scholes 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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This note was uploaded on 01/19/2012 for the course FIN 4520 taught by Professor Lucyackert during the Spring '12 term at Kennesaw.

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4520-exam2-practice - 1 FIN4520 Practice Exam 2 Dr. Lucy...

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