Chapter 11
Binomial Option Pricing: II
Multiple Choice
1.
Consider a two-period binomial model, where each period is 6 months. Assume the stock price is
$46.00, = 0.28, r = 0.06 and the dividend yield
Chapter 17
Real Options
Multiple Choice
1.
Mead, Inc. may invest $20 million in a new fiber optic project. Due to market conditions, annual
production costs and revenues are forecasted at $10 million
Chapter 9
Parity and Other Option Relationships
Multiple Choice
1.
Jafee Corp. common stock is priced at $36.50 per share. The company just paid its $0.50 quarterly
dividend. Interest rates are 6.0%.
Chapter 18
The Lognormal Distribution
Multiple Choice
1.
What is the area under the standard normal distribution curve and is less than 0.654?
(a) 0.5115
(b) 0.6215
(c) 0.7434
(d) 0.8283
Answer: C
2.
Chapter 13
Market-Making and Delta-Hedging
Multiple Choice
1.
Assume that a $50 strike call pays a 2.0% continuous dividend, r = 0.07, = 0.25, and the stock
price is $48.00. What is the profit or loss
Chapter 2
An Introduction to Forwards and Options
Multiple Choice
1.
The spot price of the market index is $900. A 3-month forward contract on this index is priced at
$930. What is the profit or loss
Chapter 7
Interest Rate Forwards and Futures
Multiple Choice
1.
The price of a 3-year zero coupon government bond is 85.16. The price of a similar 4-year bond is
79.81. What is the yield to maturity (
Chapter 10
Binomial Option Pricing: I
Multiple Choice
1.
A stock is currently selling for $22.00 per share. Ignoring interest, determine the intrinsic value of
a call option should there exist equally
Chapter 5
Financial Forwards and Futures
Multiple Choice
1.
KMW, Inc. plans to pay a dividend of $0.50 per share both 3 and 6 months from today. KMWs
share price today is $36.00 and the continuously c
Chapter 1
Introduction to Derivatives
T Multiple Choice
1.
Which of the following is not a derivative instrument?
(a) Contract to sell corn
(b) Option agreement to buy land
(c) Installment sales agree
Chapter 23
Volatility
Multiple Choice
1.
A stock has a historical volatility of 39%. The data shows significantly increased volatility in recent
data and significantly lower volatility in older data.
Contents
Chapter 1
Introduction to Derivatives . 1
Chapter 2
An Introduction to Forwards and Options . 5
Chapter 3
Insurance, Collars, and Other Strategies. 9
Chapter 4
Introduction to Risk Management
Chapter 24
Interest Rate Models
Multiple Choice
1.
Bonds maturing in 1, 2, and 3 years have prices of 0.9345, 0.8766, and 0.8212, respectively. In
year 1, what is the price of a two-year bond?
(a) 0.6
Chapter 6
Commodity Forwards and Futures
Multiple Choice
When answering questions 1 thru 6 refer to the following table of commodity forward and spot prices.
The annual risk free interest rate is 4.0%
Chapter 12
The Black-Scholes Formula
Multiple Choice
1.
What is the price of a $35 strike call? Assume S = $38.50, = 0.25, r = 0.06, the stock pays no
dividend and the option expires in 45 days?
(a) $
Chapter 15
Financial Engineering and Security Design
Multiple Choice
1.
Mel, Inc. stock is $135.00 per share. The companys semi-annual dividend is forecasted as $2.10 per
share, indefinitely. What is
Chapter 16
Corporate Applications
Multiple Choice
1.
We will assume that Nathans, Inc. has 3-year zero-coupon debt outstanding, which will pay $200
at maturity. The assets are valued at $175, = 0.20,
Chapter 20
Brownian Motion and Itos Lemma
Multiple Choice
1.
Assume a stock price of S(0) = $62.00, r = 0.05, = 0.30, and dividend = 0. What is the price of
a claim that pays S ? Use formula 20.29.
(a
Chapter 19
Monte Carlo Valuation
T Multiple Choice
1.
Given X1 = N (0, 1) and X2 = N (0.5, 8), what is the mean of e ?
(a) 69.97
(b) 79.97
(c) 89.97
(d) 99.97
Answer: B
2.
Monte Carlo simulation assum
Chapter 21
The Black-Scholes Equation
Multiple Choice
1.
What term is sometimes used to describe the price at a particular point in time, say maturity, that is
necessary to calculate todays price?
(a)