Topic: Options
89.
HighFlyer Stock currently sells for $48. A one-year call option with strike price of $55 sells
for $9, and the risk-free interest rate is 6%. What is the price of a one-year put with strike
price of $55?
90.
ING Stock currently sells for $38. A one-year call option with strike price of $45 sells for $9,
and the risk-free interest rate is 4%. What is the price of a one-year put with strike price of
$45?
91.
A callable bond should be priced the same as
92.
Asian options differ from American and European options in that
93.
Trading in “exotic options” takes place primarily
94.
Consider a one-year maturity call option and a one-year put option on the same stock, both
with striking price $45. If the risk-free rate is 4%, the stock price is $48, and the put sells
for $1.50, what should be the price of the call?
95.
Consider a one-year maturity call option and a one-year put option on the same stock, both
with striking price $100. If the risk-free rate is 5%, the stock price is $103, and the put sells
for $7.50, what should be the price of the call?
96.
Derivative securities are also called contingent claims because
97.
You purchased a call option for $3.45 17 days ago. The call has a strike price of $45 and
the stock is now trading for $51. If you exercise the call today, what will be your holding
period return? If you do not exercise the call today and it expires, what will be your holding
period return?
98.
An option with an exercise price equal to the underlying asset’s price is
99.
To the option holder, put options are worth ______ when the exercise price is higher; call
options are worth ______ when the exercise price is higher.
100.
What happens to an option if the underlying stock has a 2-for-1 split?
101.
What happens to an option if the underlying stock has a 3-for-1 split?
102.
Suppose that you purchased a call option on the S&P 100 Index. The option has an
exercise price of 1,680 and the index is now at 1,720. What will happen when you exercise
the option?
20–105
103.
Suppose that you purchased a call option on the S&P 100 Index. The option has an
exercise price of 1,700 and the index is now at 1,760. What will happen when you exercise
the option?
Short Answer Questions
104.
What is the Option Clearing Corporation (OCC) and how does this organization facilitate
option trading?
105.
Describe the protective put. What are the advantages of such a strategy?
106.
Discuss the differences in writing covered and naked calls. Are risks involved in the two
strategies similar or different? Explain.
107.
Draw a graph that shows the payoff and profit to the holder of a call option at expiration.
Draw another graph that shows the payoff to the holder of a put option at expiration. Draw
a third graph that shows the payoff of a long straddle at expiration. Be sure to label the
axes and all other relevant features of the graphs.
108.
List three types of exotic options and describe their characteristics.