Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. The difficulty level is a notch, or two notches, easier than bionicturtle.com's typical AIM-by-AIM question such that the intended difficulty level is nearer to an actual exam question. As these represent "easier than our usual" practice questions, they are well-suited to online simulation.
Questions:
413.1. A six-month (T = 0.5 years) European call option has a strike price of $50.00 while the asset price is $55.00. The asset's volatility is 34.0% per annum and it does not pay a dividend. The risk-free rate is 4.0%. If we assume that N(d1) = N(0.600) = 0.7257 and N(d2) = N(0.359) = 0.6404, which is nearest to the price of the call?
a. $3.90
b. $8.53
c. $11.27
d. $16.12
413.2. A six-month (T = 0.5 years) at-the-money European put option has a strike price equal to the current stock price of $20.00 while the riskless rate is 4.0% and the stock pays no dividends. The volatility of the underlying asset price is 34.0% per annum. If we assume that N(d1) = N(0.2304) = 0.5806 and N(d2) = N(-0.0370) = 0.4852, which is nearest to the price of the put?
a. $1.70
b. $2.09
c. $3.37
d. $4.44
413.3. An out-of-the-money (OTM) European call option with a maturity of one year (T = 1.0 year) has a strike price of $40.00 while the current price of the non-dividend-paying asset is $30.00. The volatility of the underlying asset price is 44.0% per annum and the risk-free rate is 2.0%. The price of the call is $2.48 because per the Black-Scholes option pricing model (BSM OPM) $2.48 = $30*0.3489 - $40*exp(-0.020*1.0)*0.2037. Each of the following is true about this call option EXCEPT which is false?
a. The option's delta is about 0.35
b. The risk-neutral probability that the call will be exercised (i.e., expire in-the-money) is about 20.4%
c. The price of a put option (on the same underlying asset) with an identical strike price and maturity is about $6.23
d. The call price will increase with an increase in either stock price, volatility, risk-free rate or maturity
Answers here:
Questions:
413.1. A six-month (T = 0.5 years) European call option has a strike price of $50.00 while the asset price is $55.00. The asset's volatility is 34.0% per annum and it does not pay a dividend. The risk-free rate is 4.0%. If we assume that N(d1) = N(0.600) = 0.7257 and N(d2) = N(0.359) = 0.6404, which is nearest to the price of the call?
a. $3.90
b. $8.53
c. $11.27
d. $16.12
413.2. A six-month (T = 0.5 years) at-the-money European put option has a strike price equal to the current stock price of $20.00 while the riskless rate is 4.0% and the stock pays no dividends. The volatility of the underlying asset price is 34.0% per annum. If we assume that N(d1) = N(0.2304) = 0.5806 and N(d2) = N(-0.0370) = 0.4852, which is nearest to the price of the put?
a. $1.70
b. $2.09
c. $3.37
d. $4.44
413.3. An out-of-the-money (OTM) European call option with a maturity of one year (T = 1.0 year) has a strike price of $40.00 while the current price of the non-dividend-paying asset is $30.00. The volatility of the underlying asset price is 44.0% per annum and the risk-free rate is 2.0%. The price of the call is $2.48 because per the Black-Scholes option pricing model (BSM OPM) $2.48 = $30*0.3489 - $40*exp(-0.020*1.0)*0.2037. Each of the following is true about this call option EXCEPT which is false?
a. The option's delta is about 0.35
b. The risk-neutral probability that the call will be exercised (i.e., expire in-the-money) is about 20.4%
c. The price of a put option (on the same underlying asset) with an identical strike price and maturity is about $6.23
d. The call price will increase with an increase in either stock price, volatility, risk-free rate or maturity
Answers here:
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