22/ You have a long position in a stock and a short position in a call option on the stock. The current price of the stock is $20. In 3 months, it will either be $24 or $16. The 3-month call option has a strike price of $20. The risk-free rate is 10% for all maturities. Calculate the value of the option using a one-step binomial model. A. $0.251 B. $7.802 C. $2.198 D. $2.682 Answer: Solution: 23/ 24/ With respect to put-call parity, a protective put consists of a European: A. Put option and the underlying asset. B. Call option and the underlying asset. C. Put option and the zero-coupon bond. D. Call option and the zero-coupon bond. Consider an option strategy of buying one $50 strike put for $7, selling two $42 strikes puts for $4 each, and buying one $37 put for $2. All options have the same maturity. Calculate the final profit per share of the strategy if the underlying is trading at $33 at expiration. A. $1 per share. B. $2 per share. C. $3 per share. D. $4 per share. Answer: Solution: 5/ An investor decides that it would be prudent to temporarily hedge the 100,000 shares of a company named APOTH she owns. She intends to implement a hedging strategy using 6-month European options and gather the date in the following table: Option W X Y Z Type of option Call Call Put Put Exercise price $38 $46 $38 $36 N(d1) 0.56 0.30 0.56 0.64 N(d2) 0.45 0.21 0.45 0.53 The number of option X contracts that the investor would have to sell to implement the hedge strategy would be closest to: 8