Consider two put options on the same stock with the same time to maturity. The strike price of Put A is less than the strike price of Put B. Which of the following is true? O It is possible for Put A to be in the money and Put B to be out of the money. O It is possible for Put A to be out of the money and Put B to be in the money. One of the options must be in the money. All of the other answers are correct.

Consider two put options on the same stock with the same time to maturity. The strike price of Put A is less than the strike price of Put B. Which of the following is true? O It is possible for Put A to be in the money and Put B to be out of the money. O It is possible for Put A to be out of the money and Put B to be in the money. One of the options must be in the money. All of the other answers are correct.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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It's acceptable to use the Black-Scholes formula or binomial trees to value real options,even though the options are not traded.Do you agree with this statement?What is the key assumption of the valuation method?
Multiple Choices: 1. What happens to a premium for a call option if the underlying futures price increases (all else equal)? (i) The premium increases. (ii) The premiums stays the same. (iii) The premium decreases. (iv) There is no relationship between the premium and futures prices. 2. What happens to a premium for a put option if volatility in the underlying futures contract decreases (all else equal)? (i) The premium increases. (ii) The premiums stays the same. (iii) The premium decreases. (iv) There is no relationship between the premium and volatility. 3. Which of the following is false about the seller an option? (i) The seller is required to have a margin account (ii) The seller has an obligation, not a right (iii) The seller always wants the futures price to rise (iv) The seller can choose to offset the option
(b) What is the time value of an option? Why does an option's time value decay as the option approaches expiration?
Explain why an American call options on futures could be optimally exercised early while call options on the spot can not be optimally exercised. Assume that there is no dividend. Explain how to use call options and put options to create a synthetic short position in stock.
Use the put-call parity relationship to demonstrate that an at-the-money call option on a nondividend-paying stock must cost more than an at-the-money put option. Show that the prices of the put and call will be equal if So = (1 + r)^T
In our study of Real Options, we learned about the many benifits of Real Options. Of the below, which is FALSE? O A. Given the option to delay, an investment that currently has a negative NPV can have a positive value. O B. As the level of uncertainty increases, the benefit of waiting is diminished. OC. In a real option analysis, the dividends correspond to any value from the investment that we give up by waiting. O D. By delaying an investment, we can base our decision on new information.
4. Answer the following questions on exotic options: (a) Discuss the differences between a combination and a spread when constructing portfolios of options. (b) Define a long strangle and represent the profit function. (c) Design a forward contract on a stock with a particular delivery price and delivery date as a combination of options on the same underlying asset.
As a call option is an option to buy and a put option an option to sell, the opposite position to buying an option to buy is buying an option to sell. Therefore, any factor that increases the value of a call option will decrease the value of a put option written on the same asset. Identify whether it is TRUE or FALSE. Why? Give an explanation.
Below is a chart with profit/loss on the vertical axis, and the $/£ exchange rate on the horizontal axis. The solid line shows the profit/loss schedule for a: Question 8 options: put option in isolation (e.g. used for speculating that the pound will depreciate) None of the above covered call option (a call option is used as a hedge) covered put option (a put option is used as a hedge)
Real Options & Game Theory: The value of a call option and a put option is influenced by the following variables: - Underlying asset value- Strike Price- Variance of Underlying asset- Time to Expiration What effect would an increase in each of these variables have on the value of a calloption and a put option?
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. The following table presents the data on ABC Corp.'s call options at different stock prices. Based on your understanding of exercise value and option prices, complete the table with a strike price of $24.00: Stock Price ($) 16.00 32.00 40.00 44.00 48.00 Strike Price ($) 24.00 24.00 24.00 24.00 24.00 Exercise Value ($) Market Price of Option ($) 1.56 10.10 0.00 20.00 18.40 22.60 28.00 Time Value ($) 2.10 2.40 4.00 After two weeks, the stock price of ABC Corp. increases to…
Which one of the following statements is true? Multiple Choice O O O O A call with a strike price of $25 and a stock price of $23 has positive intrinsic value. A European style option is more valuable than an American style option. An American style out-of-the-money call option can have a positive value. A $40 put option has more intrinsic value than a $50 put option on the same underlying asset. The time value of an option is equal to the intrinsic value minus the option premium.

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