Reference no: EM133020941

Question 1 - You observe the following prices in a situation in which European put-call parity ought to apply: Put price $0.19, Call price $0.05, Share price $2.00, Exercise price $2.20, Term to expiry 4 months, and risk-free interest rate 1% per month (compounded monthly). The prices of these options and the share price suggest that:

a) The call option is relatively overpriced.

b) The put option is relatively overpriced.

c) The call and put options are under-priced when compared to the share price.

d) The call and put options are priced correctly when compared to the share price.

e) None of the above statements is correct.

Question 2 - On 1 May 2020, Sunup Ltd.'s share price is $4.35. The risk-free rate of interest is 1% per month. Sunup Ltd. Does not pay dividends and options on Sunup shares expire at the end of the expiry month. What is the minimum value of the June $4.75 American put option?

a) $0.349

b) $0.400

c) $0.306

d) $0.386

e) None of the above answers is correct.

Question 3 - A company buys a put option to sell A$20 million (with an exercise price of US$0.8000 per $A1). What is the payoff (expressed in A$) if at the end of the options life the exchange rate is US$0.7500 = A$1?

a) $A2.700 million

b) $A1.250 million

c) $A2.500 million

d) $A1.333 million

e) Zero