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FIU FIN4486 Homework 4 Chapters 9 and 10

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84.0;b. S < 84.0;c. S < 56.0;d. S 100;d.S 100;b. S < 100;c. S 85.5;Question 4;8 out of 8 points;Correct;A put option on 100 shares of Generous Dynamics stock has an;exercise price $115.0 per share. GD declares 4.0-for-1 stock split. What;happens to the exercise price and the number of shares underlying the option?;Selected Answer;Answers;a. Number of shares is reduced to 25.0 and the exercise;price is increase to 460.0;b. Nothing happens;c. Number of shares increases to 400.0 and the exercise;price is reduced to 28.75;d. Number of shares increases to 400.0 and the exercise;price remains the same.;Question 5;0 out of 7 points;Incorrect;A call option on 100 shares of Generous Dynamics stock has;an exercise price $125.0 per share. GD declares a stock dividend of 18.0;percent. What happens to the exercise price and the number of shares underlying;the option?;Selected Answer;Answers;a. Nothing happens;b. Number of shares increases to 118.0 and the exercise;price remains the same.;c. Number of shares increases to 118.0 and the exercise;price is reduced to 105.93;d. Number of shares increases to 118.0 and the exercise;price is reduced to 102.5;Question 6;8 out of 8 points;Correct;What choice correctly completes the Table shown below;Summary of Effect on the Price of a American Call Option of Increasing One Variable;Stock Price Strike Maturity Volatility Risk-free rate Dividend;+?????;Selected Answer;Answers;a. -, +, +, -, -;b. -, +, +, -, +;c. -, +,?, -, +;d. -, +, +, +, -;Question 7;8 out of 8 points;Correct;What choice correctly completes the Table shown below;Summary of Effect on the Price of a American Put Option;of Increasing One Variable;Stock Price Strike Maturity Volatility Risk-free rate Dividend;-?????;Selected Answer;Answers;a. +, +, +, -, +;b. +,?, +, -, +;c. +, +, +, +, +;d. +, +, +, -, -;Question 8;8 out of 8 points;Correct;A European put option on ENRON stock has a strike price;$55.0 and matures in 9.0 months. The continuously compounded risk-free rate is;7.0 percent per year. If the price of ENRON stock goes to zero, what is the;value of the put option?;Selected Answer;d. 52.187;Answers;a. 50.305;b. 55.0;c. 57.965;d. 52.187;Question 9;8 out of 8 points;Correct;An American put option on ENRON stock has a strike price;$52.5 and matures in 9.0 months. The continuously compounded risk-free rate is;5.25 percent per year. If the price of ENRON stock goes to zero, what is the;value of the put option?;Selected Answer;Answers;a. 52.5;b. 54.608;c. 50.473;d. 49.065;Question 10;7 out of 7 points;Correct;Consider a European put option with a strike price of $143.0;and maturity of 6.0 months. The underlying stock price equals 123. The;continuously compounded risk-free rate is 7.0 percent per year. What is the;lower and upper bound, respectively, on the option value?;Selected Answer;Answers;a. 20.0, 143.0;b. 15.082, 143.0;c. 20.0, 138.08;d. 15.082, 138.08;Question 11;0 out of 8 points;Incorrect;Suppose that a American put option with a strike price of;$97.5 and maturity of 7.0 months costs $12.3. The underlying stock price equals;85. The continuously compounded risk-free rate is 6.5 percent per year. What is;the potential arbitrage profit from buying a put option on one share of stock?;Selected Answer;Answers;a. 3.4277;b. 0.2;c. 6.4295;d. 3.9679;Question 12;8 out of 8 points;Correct;Consider a European call option with a strike price of;$128.0 and maturity of 9.0 months. The underlying stock price equals 133. The;continuously compounded risk-free rate is 9.25 percent per year. What is the;lower bound on the option value?;Selected Answer;Answers;a. 12.875;b. 4.0;c. 13.579;d. 5.0;Question 13;0 out of 7 points;Incorrect;A European call option with a strike price of $99.0 and;maturity of 6.0 months costs $25.216.The underlying stock price is $119.0. The;continuously compounded risk-free rate is 9.0 percent per year. What is the;value of a European put option with strike price of $99.0 and maturity of 6.0;months?;Selected Answer;c. 4.9195;Answers;a. 1.2723;b. 0.86012;c. 4.9195;d. 5.2164;Saturday, April 19, 2014 12:28:45 AM EDT

 

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