Finance 28 MCQ'S-When the non-dividend paying stock price is $20, the strike price is $20....

Finance 28 MCQ'S-When the non-dividend paying stock price is $20, the strike price is $20....

Question # 00036430 Posted By: jia_andy Updated on: 12/13/2014 11:09 PM Due on: 05/31/2015
Subject Business Topic General Business Tutorials:
Question
Dot Image

QUESTION 1
1. When the non-dividend paying stock price is $20, the strike price is $20, the risk-free rate is 5%, the volatility is 20% and the time to maturity is 3 months which of the following is the price of a European put option on the stock

a. 19.7N(-0.1)-20N(-0.2)

b. 20N(-0.1)-20N(-0.2)

c. 19.7N(-0.2)-20N(-0.1)

d. 20N(-0.2)-20N(-0.1)
1 points
QUESTION 2
1. A stock provides an expected return of 10% per year and has a volatility of 20% per year. What is the expected value of the continuously compounded return in one year?

a. 6%

b. 8%

c. 10%

d. 12%

QUESTION 3
1. A stock price is 20, 22, 19, 21, 24, and 24 on six successive Fridays. Which of the following is closest to the volatility per annum estimated from this data?

a. 50%

b. 60%

c. 70%

d. 80%
1 points
QUESTION 4
1. Which of the following is true for a one-year call option on a stock that pays dividends every three months?

a. It is never optimal to exercise the option early

b. It can be optimal to exercise the option at any time

c. It is only ever optimal to exercise the option immediately after an ex-dividend date

d. None of the above
1 points
QUESTION 5
1. An investor has earned 2%, 12% and -10% on equity investments in successive years (annually compounded). This is equivalent to earning which of the following annually compounded rates for the three year period.

a. 1.33%

b. 1.23%

c. 1.13%

d. 0.93%
1 points
QUESTION 6
1. The volatility of a stock is 18% per year. Which of the following is closest to the volatility per month?

a. 1.5%

b. 3.0%

c. 5.2%

d. 6.3%
1 points
QUESTION 7
1. What was the original Black-Scholes-Merton model designed to value?

a. A European option on a stock providing no dividends

b. A European or American option on a stock providing no dividends

c. A European option on any stock

d. A European or American option on any stock

1. Which of the following is NOT true?

a. Risk-neutral valuation provides prices that are only correct in a world where investors are risk-neutral

b.Options can be valued based on the assumption that investors are risk neutral

c. In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate

d. In risk-neutral valuation the risk-free rate is used to discount expected cash flows

QUESTION 9
1. Which of the following is true for a one-year call option on a stock that pays dividends every three months?

a. It is never optimal to exercise the option early

b. It can be optimal to exercise the option at any time

c. It is only ever optimal to exercise the option immediately after an ex-dividend date

d. None of the above
1 points
QUESTION 10
1. When there are two dividends on a stock, Black's approximation sets the value of an American call option equal to which of the following

a. The value of a European option maturing just before the first dividend

b. The value of a European option maturing just before the second (final) dividend

c. The greater of the values in A and B

d. The greater of the value in B and the value assuming no early exercise

QUESTION 11
1. The risk-free rate is 5% and the expected return on a non-dividend-paying stock is 12%. Which of the following is a way of valuing a derivative?

a. Assume that the expected growth rate for the stock price is 17% and discount the expected payoff at 12%

b. Assuming that the expected growth rate for the stock price is 5% and discounting the expected payoff at 12%

c. Assuming that the expected growth rate for the stock price is 5% and discounting the expected payoff at 5%

d. Assuming that the expected growth rate for the stock price is 12% and discounting the expected payoff at 5%
1 points
QUESTION 12
1. An investor has earned 2%, 12% and -10% on equity investments in successive years (annually compounded). This is equivalent to earning which of the following annually compounded rates for the three year period.

a. 1.33%

b. 1.23%

c. 1.13%

d. 0.93%

QUESTION 13
1. A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. Which of the following are true?

a. The parameters p and u are the same for both trees

b. The parameter p is the same for both trees but u is not

c. The parameter u is the same for both trees but p is not

d. None of the above

QUESTION 14
1. In a binomial tree created to value an option on a stock, the expected return on stock is

a. Zero

b. The return required by the market

c. The risk-free rate

d. It is impossible to know without more information

QUESTION 15
1. The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What is the risk-neutral probability of that the stock price will be $36?

a. 0.6

b. 0.5

c. 0.4

d. 0.3

QUESTION 16
1. The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. An investor sells call options with a strike price of $32. What is the value of each call option?

a. $1.6

b. $2.0

c. $2.4

d. $3.0

QUESTION 17
1. The current price of a non-dividend paying stock is $50. Use a two-step tree to value an American put option on the stock with a strike price of $48 that expires in 12 months. Each step is 6 months, the risk free rate is 5% per annum, and the volatility is 20%. Which of the following is the option price?

a. $1.95

b. $2.00

c. $2.05

d. $2.10

QUESTION 18
1. A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. Which of the following are true?

a. The parameters p and u are the same for both trees

b. The parameter p is the same for both trees but u is not

c. The parameter u is the same for both trees but p is not

d. None of the above
1 points
QUESTION 19
1. The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per annum with continuous compounding. What is the option price when u = 1.1 and d = 0.9.

a. $1.29

b. $1.49

c. $1.69

d. $1.89
1 points
QUESTION 20
1. In a binomial tree created to value an option on a stock, the expected return on stock is

a. Zero

b. The return required by the market

c. The risk-free rate

QUESTION 1
1. When the non-dividend paying stock price is $20, the strike price is $20, the risk-free rate is 5%, the volatility is 20% and the time to maturity is 3 months which of the following is the price of a European put option on the stock

a. 19.7N(-0.1)-20N(-0.2)

b. 20N(-0.1)-20N(-0.2)

c. 19.7N(-0.2)-20N(-0.1)

d. 20N(-0.2)-20N(-0.1)
1 points
QUESTION 2
1. A stock provides an expected return of 10% per year and has a volatility of 20% per year. What is the expected value of the continuously compounded return in one year?

a. 6%

b. 8%

c. 10%

d. 12%

QUESTION 3
1. A stock price is 20, 22, 19, 21, 24, and 24 on six successive Fridays. Which of the following is closest to the volatility per annum estimated from this data?

a. 50%

b. 60%

c. 70%

d. 80%
1 points
QUESTION 4
1. Which of the following is true for a one-year call option on a stock that pays dividends every three months?

a. It is never optimal to exercise the option early

b. It can be optimal to exercise the option at any time

c. It is only ever optimal to exercise the option immediately after an ex-dividend date

d. None of the above
1 points
QUESTION 5
1. An investor has earned 2%, 12% and -10% on equity investments in successive years (annually compounded). This is equivalent to earning which of the following annually compounded rates for the three year period.

a. 1.33%

b. 1.23%

c. 1.13%

d. 0.93%
1 points
QUESTION 6
1. The volatility of a stock is 18% per year. Which of the following is closest to the volatility per month?

a. 1.5%

b. 3.0%

c. 5.2%

d. 6.3%
1 points
QUESTION 7
1. What was the original Black-Scholes-Merton model designed to value?

a. A European option on a stock providing no dividends

b. A European or American option on a stock providing no dividends

c. A European option on any stock

d. A European or American option on any stock

1. Which of the following is NOT true?

a. Risk-neutral valuation provides prices that are only correct in a world where investors are risk-neutral

b.Options can be valued based on the assumption that investors are risk neutral

c. In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate

d. In risk-neutral valuation the risk-free rate is used to discount expected cash flows

QUESTION 9
1. Which of the following is true for a one-year call option on a stock that pays dividends every three months?

a. It is never optimal to exercise the option early

b. It can be optimal to exercise the option at any time

c. It is only ever optimal to exercise the option immediately after an ex-dividend date

d. None of the above
1 points
QUESTION 10
1. When there are two dividends on a stock, Black's approximation sets the value of an American call option equal to which of the following

a. The value of a European option maturing just before the first dividend

b. The value of a European option maturing just before the second (final) dividend

c. The greater of the values in A and B

d. The greater of the value in B and the value assuming no early exercise

QUESTION 11
1. The risk-free rate is 5% and the expected return on a non-dividend-paying stock is 12%. Which of the following is a way of valuing a derivative?

a. Assume that the expected growth rate for the stock price is 17% and discount the expected payoff at 12%

b. Assuming that the expected growth rate for the stock price is 5% and discounting the expected payoff at 12%

c. Assuming that the expected growth rate for the stock price is 5% and discounting the expected payoff at 5%

d. Assuming that the expected growth rate for the stock price is 12% and discounting the expected payoff at 5%
1 points
QUESTION 12
1. An investor has earned 2%, 12% and -10% on equity investments in successive years (annually compounded). This is equivalent to earning which of the following annually compounded rates for the three year period.

a. 1.33%

b. 1.23%

c. 1.13%

d. 0.93%

QUESTION 13
1. A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. Which of the following are true?

a. The parameters p and u are the same for both trees

b. The parameter p is the same for both trees but u is not

c. The parameter u is the same for both trees but p is not

d. None of the above

QUESTION 14
1. In a binomial tree created to value an option on a stock, the expected return on stock is

a. Zero

b. The return required by the market

c. The risk-free rate

d. It is impossible to know without more information

QUESTION 15
1. The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What is the risk-neutral probability of that the stock price will be $36?

a. 0.6

b. 0.5

c. 0.4

d. 0.3

QUESTION 16
1. The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. An investor sells call options with a strike price of $32. What is the value of each call option?

a. $1.6

b. $2.0

c. $2.4

d. $3.0

QUESTION 17
1. The current price of a non-dividend paying stock is $50. Use a two-step tree to value an American put option on the stock with a strike price of $48 that expires in 12 months. Each step is 6 months, the risk free rate is 5% per annum, and the volatility is 20%. Which of the following is the option price?

a. $1.95

b. $2.00

c. $2.05

d. $2.10

QUESTION 18
1. A tree is constructed to value an option on an index which is currently worth 100 and has a volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility of 25%. Which of the following are true?

a. The parameters p and u are the same for both trees

b. The parameter p is the same for both trees but u is not

c. The parameter u is the same for both trees but p is not

d. None of the above
1 points
QUESTION 19
1. The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per annum with continuous compounding. What is the option price when u = 1.1 and d = 0.9.

a. $1.29

b. $1.49

c. $1.69

d. $1.89
1 points
QUESTION 20
1. In a binomial tree created to value an option on a stock, the expected return on stock is

a. Zero

b. The return required by the market

c. The risk-free rate


d. It is impossible to know without more information
1 points
QUESTION 21
1. If the volatility of a non-dividend-paying stock is 20% per annum and a risk-free rate is 5% per annum, which of the following is closest to the Cox, Ross, Rubinstein parameter p for a tree with a three-month time step?

a. 0.50

b. 0.54

c. 0.58

d. 0.62

QUESTION 22
1. A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net loss (after the cost of the options is taken into account)?

a. $100

b. $200

c. $300

d. $400
1 points
QUESTION 23
1. Which of the following is true of a box spread?

a. It is a package consisting of a bull spread and a bear spread

b. It involves two call options and two put options

c. It has a known value at maturity

d. All of the above
1 points
QUESTION 24
1. What is the number of different option series used in creating a butterfly spread?

a. 1

b. 2

c. 3

d. 4
1 points
QUESTION 25
1. Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 200 options?

a. $100

b. $200

c. $300

d. $400
1 points

QUESTION 26
1. How can a straddle be created?

a. Buy one call and one put with the same strike price and same expiration date

b. Buy one call and one put with different strike prices and same expiration date

c. Buy one call and two puts with the same strike price and expiration date

d. Buy two calls and one put with the same strike price and expiration date

1.
question 27- Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 200 options?

a. $100

b. $200

c. $300

d. $400

1 points
QUESTION 28
1. What is a description of the trading strategy where an investor sells a 3-month call option and buys a one-year call option, where both options have a strike price of $100 and the underlying stock price is $75?

a. Neutral Calendar Spread

b.Bullish Calendar Spread

c. Bearish Calendar Spread

d. None of the above


d. It is impossible to know without more information
1 points
QUESTION 21
1. If the volatility of a non-dividend-paying stock is 20% per annum and a risk-free rate is 5% per annum, which of the following is closest to the Cox, Ross, Rubinstein parameter p for a tree with a three-month time step?

a. 0.50

b. 0.54

c. 0.58

d. 0.62

QUESTION 22
1. A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net loss (after the cost of the options is taken into account)?

a. $100

b. $200

c. $300

d. $400
1 points
QUESTION 23
1. Which of the following is true of a box spread?

a. It is a package consisting of a bull spread and a bear spread

b. It involves two call options and two put options

c. It has a known value at maturity

d. All of the above
1 points
QUESTION 24
1. What is the number of different option series used in creating a butterfly spread?

a. 1

b. 2

c. 3

d. 4
1 points
QUESTION 25
1. Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 200 options?

a. $100

b. $200

c. $300

d. $400
1 points

QUESTION 26
1. How can a straddle be created?

a. Buy one call and one put with the same strike price and same expiration date

b. Buy one call and one put with different strike prices and same expiration date

c. Buy one call and two puts with the same strike price and expiration date

d. Buy two calls and one put with the same strike price and expiration date

1.
question 27- Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 200 options?

a. $100

b. $200

c. $300

d. $400

1 points
QUESTION 28
1. What is a description of the trading strategy where an investor sells a 3-month call option and buys a one-year call option, where both options have a strike price of $100 and the underlying stock price is $75?

a. Neutral Calendar Spread

b.Bullish Calendar Spread

c. Bearish Calendar Spread

d. None of the above
Dot Image
Report this Question as Inappropriate
Tutorials for this Question
  1. jia_andy
    Tutorial # 00035699 Posted By: jia_andy Posted on: 12/13/2014 11:16 PM
    Puchased By: 3
    Tutorial Preview
    The solution of FIN MCQ 28 -When the non-dividend paying stock price is $20, the strike price is $20.......
      Get the Solution
    Attachments
    Finance_28_Multiple_Choice_Questions_Set_Solution_(1).docx (15.24 KB)
    Recent Feedback
    Rated By Feedback Comments Rated On
    bni...003 Rating Customized tutorials from all the subjects 05/12/2015
  Get the Solution

Great! We have found the solution of this question!

Related Questions and Answers

Whatsapp Lisa