Reference no: EM132370200
MFE Financial Derivatives Assignment -
Multiple Choice - Identify the choice that best completes the statement or answers the question.
Q1. A market index is currently at $830. The premium of a put on the index with a strike of $830 and expiring in 6 months is $18.00. The risk-free interest rate is 0.5% per month, what is the estimated price of a call option with an exercise price of $830 and expiring in 6 months?
A. $42.47
B. $45.26
C. $47.67
D. $49.55
Q2. Using put-call parity, it can be shown that a synthetic SHORT European put can be created by a portfolio that is:
A. long the stock, long the call, and long a zero-coupone bond that pays the exercise price at option expiration.
B. long the stock, short the call, and short a zero-coupone bond that pays the exercise price at option expiration.
C. long the stock, long the call, and short a zero-coupone bond that pays the exercise price at option expiration.
D. long the stock, short the call, and long a zero-coupone bond that pays the exercise price at option expiration.
Q3. David Murphy observes that a stock, Twin Inc., which is not expected to pay dividends in the next year, is currently trading at $38.56/share. A put option with a strike price of 40 and 6-month expiration date costs $5.15 and a call option with the same strike and expiration date is priced at $4.32 for each share Twin's stock. The current risk-free rate is 0.2% per month. After checking the prices with the put-call parity, David decides to take an arbitrage opportunity by
A. Taking short positions in the call option and the underlying stock and holding long positions in the risk-free zero-coupon bond with a par of $40 and in the put option.
B. Taking short positions in the put option and the underlying stock and holding long positions in the risk-free zero-coupon bond with a par of $40 and in the call option.
C. Taking long positions in the call option and the underlying stock and holding short positions in the risk-free zero-coupon bond with a par of $40 and in the put option.
D. Taking long positions in the put option and the underlying stock and holding short positions in the risk-free zero-coupon bond with a par of $40 and in the call option.
Q4. For an index, the $930 strike 6 months call premium is $45.34 and the $950 strike 6 months call is selling for $28.78. What is the maximum profit that an investor can obtain from a strategy employing a bull spread at strike prices 930 and 950 with these two call options over 6 months? Interest rates is 0.5% per month.
A. $2.44
B. $2.94
C. $37.06
D. $36.56
Option Chain 1: This is an option chain for options expires in 110 days. You can assume T = 0.3 year and there is no bid-ask spread, i.e. each option can be bought and sold at the same price.
|
Calls
|
Strikes
|
Puts
|
|
13.46
|
50
|
0.66
|
|
11.81
|
52
|
1.00
|
|
10.26
|
54
|
1.44
|
|
8.83
|
56
|
2.00
|
|
7.53
|
58
|
2.68
|
|
6.36
|
60
|
3.50
|
Q5. Using information from Option Chain 1. For a call-constructed 52-60 bull spread, what is the breakeven underlying price at expiration? (Ignore the time value of money for the option premiums)
A. 58.63
B. 54.55
C. 56.00
D. 57.45
Q6. Using information from Option Chain 1. For a put-constructed 50-58 bear spread, what is the maximum loss at expiration? (Ignore the time value of money for the option premiums)
A. 3.34
B. 2.02
C. 5.98
D. 11.34
Q7. Using information from Option Chain 1. For a call-constructed 50-60 bear spread, what is the profit or loss when the underlying spot price is 55 at expiration? (Ignore the time value of money for the option premiums)
A. -5.00
B. 8.46
C. 2.10
D. -11.36
Q8. Using information from Option Chain 1. To borrow the present value of 6 dollars from this option market now, one should constructing a box spread by doing which of the following?
A. contruct a 54-60 bear spread using calls and a 54-60 bull spread using calls.
B. contruct a 54-60 bull spread using calls and a 54-60 bear spread using puts.
C. long a put and short a call at 54 strike price, long a call and short a put at 60 strike price.
D. long a call and short a put at 54 strike price, long a put and short a call at 60 strike price.
Q9. Using information from Option Chain 1. Consider a ratio spread constructed using the 50-strike put and the 58-strike put options and the goal is to use the ratio spread to provide some downside protection with almost no cost. If the spot price of the underlying at expiration is 49, what is the profit or loss for this ratio spread per unit of the underlying asset (such as one share of a stock)? (Ignore the time value of money for the option premiums)
A. 4.04
B. -4.96
C. -5.64
D. 3.04
Q10. Using information from Option Chain 1. An investor purchased the underlying asset at 45/unit some time ago. Now, the investor forms a 52-58 collar on this asset. If at expiration, the spot price of the underlying asset is 50. What is the total profit or loss per unit on the collared asset? (Ignore the time value of money for the option premiums)
A. 13.53
B. 7.00
C. -3.53
D. 0.47