MC Sample

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1.

The option price is also referred to as the


(a) strike
(b) spread
(c) premium
(d) fee
(e) none of the above

2. Which of the following are always positively related to the price of a European
call option on a stock?
(a) The stock price
(b) The strike price
(c) The Time to expiration
(d) Dividend
(e) None of the above

3. Which of the following have similar profit graphs?


(a) call bull spread and long box spread
(b) put bear spread and short box spread
(c) calendar spread and call bear spread
(d) butterfly spread and long strip
(e) none of the above

4. Which of the following strategies could one use to replicate a short put?

(a) Write a call


(b) Write a call and purchase the underlying asset
(c) Short sell the underlying asset
(d) Buy a put and buy the underlying asset
(e) t is only desirable to replicate a long put

The following information refers to the next two questions. An option on a non-
dividend paying stock has the following features: the current stock price is $15, the
exercise price is $14, the risk-free interest rate is 6% per annum, and the time to
maturity is 3 months.

5. Suppose the stock’s volatility is 30% per annum. Then


(a) d1 = 0.74, and d2 = 0.22.
(b) d1 = 0.81, and d2 = 0.66.
(c) d1 = 0.63, and d2 = 0.56
(d) d1 = 0.56, and d2 = 0.41.
(e) d1 = 0.63, and d2 = 0.48

6. Suppose N(d1) = 0.7000 and N(d2) = 0.6300. Then the call option price is:
(a) 0.20
(b) 0.49
(c) 1.81
(d) 3.13
(e) 4.35
7. Which of the following variables in the Black-Scholes option pricing model is the
most difficult to obtain?
(a) the volatility
(b) the risk-free rate
(c) the stock price
(d) the time to expiration
(e) the strike price

8. A stock price is currently $100. Over each of the next two three-month period it
is expected to increase by 10% or fall by 10%. Consider a six-month American
put option with a strike price of $95. The risk-free interest rate is 8% per annum.
What is the value of the option? What is the value of the option if it’s American?

9. A portfolio of derivatives on a stock has a delta of 2400 and a gamma of -100.


What position in the stock would create a delta-neutral portfolio? An option on the
stock with a delta of 0.6 and a gamma of 0.04 can be traded. What position on the
option and the stock create a portfolio that is both gamma and delta neutral?

10. A derivative provides a payoff of ST - Smin . This derivative is called a:


(a) Asian call option
(b) Average rate option
(c) Lookback put option
(d) Binary option
(e) Lookback call option

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