FIN134, Spring 2014 Dr. Lan Liu 1 Homework 3 – Part 1 (Chapter 22 & 23) c 1. You can realize the same value as that derived from stock ownership if you: a. sell a put option and invest at the risk-free rate of return. b.buy a call option and write a put option on a stock and also lend out funds at the risk- free rate. c. sell a put and buy a call on a stock as well as invest at the risk-free rate of return. d. lend out funds at the risk-free rate of return and sell a put option on the stock. e.borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options. a 2. Jillian owns an option which gives her the right to purchase shares of WAN stock at a price of $20 a share. Currently, WAN stock is selling for $24.50. Jillian would like to profit on this stock but is not permitted to exercise her option for another two weeks. Which of the following statements apply to this situation? I. Jillian must own a European call option. II. Jillian must own an American put option. III. Jillian should sell her option today if she feels the price of WAN stock will decline significantly over the next two weeks. IV. Jillian cannot profit today from the price increase in WAN stock. e 3. The difference between an American call and a European call is that the American call: e 4. A 35 put option on ABC stock expires today. The current price of ABC stock is $36. The put is: d 5. The maximum value of a call option is equal to: a. the strike price minus the initial cost of the option. b. the exercise price plus the price of the underlying stock. c. the strike price. d. the price of the underlying stock.
FIN134, Spring 2014 Dr. Lan Liu 2 e. the purchase price. b
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