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Download Options Futures and Other Derivatives 8th Edition Hull Test Bank all chapters
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Test Bank: Chapter 10
Properties of Stock Options
1. Which of the following are always positively related to the price of a European
call option on a stock (circle three)
(a) The stock price
(b) The strike price
(c) The time to expiration
(d) The volatility
(e) The risk-free rate
(f) The magnitude of dividends anticipated during the life of the option
2. What, to the nearest cent, is the lower bound for the price of a two-year European
call option on a stock when the stock price is $20, the strike price is $15, and the
risk-free interest rate with continuous compounding is 5% and there are no
dividends? _ _ _ _ _ _
4. What, to the nearest cent, is the lower bound for the price of a six-month
European put option on a stock when the stock price is $40, the strike price is $46
and the risk-free interest rate with continuous compounding is 6%? _ _ _ _ _ _
8. A call and a put on a stock have the same strike price and time to maturity. At
10:00am on a certain day, the price of the call is $3 and the price of the put is $4.
At 10:01am news reaches the market that has no effect on the stock price or
interest rates, but increases volatilities. As a result the price of the call changes to
$4.50. What would you expect the price of the put to change to? _ _ _ _ _ _
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