Path-dependent option when stock pay constant dividend yield

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Reference no: EM132071417

1) When the number of time periods in a binomial model is large, what happens to the binomial probability of an up move?

a) it approaches 1.0

b) it approaches zero

c) it fluctuates without pattern

d) it converges to 0.5

e) none of the given choices

2) Which of the following are not path-dependent options when the stock pays a constant dividend yield?

A) European calls and European puts

b) European calls and American puts

c) American puts and European puts

d) American puts and European calls

e) none of the given choices

3) The following information is given about options on the stock of a certain company.

S0 = 23 X = 20 rc = 0.09 T = 0.5 sigma2 = 0.15

No dividends are expected.

To construct a riskless hedge, the number of puts per 100 shares purchased is: (Due to differences in rounding your calculations may be slightly different. “none of the given choices” should be selected only if your answer is different by more than 0.01.)

a) 0.7580

b) 0.2420

C) –0.2480

D) –0.6628

e) none of the given choices

Reference no: EM132071417

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