Which of the following statements about options on Warwick plc stock, a non- dividend-paying stock, is/are true? (a) The current value of a short American call option is minus the current value of the corresponding long European call option with the same strike price and maturity. (b) The current value of a short American put option is minus the current value of the corresponding long European put option with the same strike price and maturity. (c) If the option is sufficiently in-the- money and the risk-free rate is positive, the value of a long European put option is strictly less than the payoff to the put option.

Which of the following statements about options on Warwick plc stock, a non- dividend-paying stock, is/are true? (a) The current value of a short American call option is minus the current value of the corresponding long European call option with the same strike price and maturity. (b) The current value of a short American put option is minus the current value of the corresponding long European put option with the same strike price and maturity. (c) If the option is sufficiently in-the- money and the risk-free rate is positive, the value of a long European put option is strictly less than the payoff to the put option.

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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Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $100 (down state). What would be the call option hedge ratio for each of the following exercise prices: $135, $122, $111, $100, given the possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $100 (down state)? Exercise Price Hedge Ratio $135 ? $122 ? $111 ? $100 ?
On what basis are NQ stock options usually taxed when the option has no readily ascertainable fair market value? a. the difference between the fair market value of the shares when purchased and the option price b. the fair market value of the shares c. the option price plus 1⁄2 the fair market value of the stock when sold d. the price when the shares are sold minus the original option value
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.
If the stock price increases, the price of a put option on that stock ________ and that of a call option _________. decreases, increases decreases, decreases increases, decreases increases, increases
None
Which of the following is NOT always positively related to the price of a European call option on a stock? a) The time to expiration b) The volatility c) The risk-free rate d) The stock price
What is the difference between the long and the short positions in a contract for the future delivery of the S&P 500 stock index? If you expect stock prices to fall, do you buy or sell stock index futures?View Solution: What is the difference between the long and the short
Describe what a stock option is. what does it means to buy a "put" or a "call" and what you are expecting the stock to do for each (ie go up or down in price). Discuss when you would make money on a put option and when you would make money on a call option.
A call option on a stock trading at $58 has an exercise price of $47. The call option is _____ Check all that apply A. in the money B. out of the money C. at the money
European plain vanilla call options with strikes 30 and 35 on the same non- dividend paying asset with spot price $ 35 are trading for $ 11.50 and $ 7, respectively. Does arbitrage exist, and if so, how do you take advantage of it?
You hold a portfolio of an asset-or-nothing call and a cash-or-nothing put option written on a stock that does not pay dividends. The strike price of the options is the same. The payout of the cash-or- nothing option if it is exercised equals the strike price. Your portfolio is equivalent to O A plain-vanilla call option. O None of the other answers are correct. O A covered call position, i.e., a long stock + short plain vanilla call. O A plain-vanilla put option. O A protective put position, i.e., a long stock + long put option.
Which of the following five call options on the same underlying stock has the highest price? Possible Answers A 6-month 28-strike American call A 6-month 32-strike American call A l-year 28-strike American call A l-year 32-strike American call A l-year 28-strike European call

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