Question

Please provide letter answer and explanation:

1. A call option is currently trading for $14.85 with an exercise price of $100. The stock price is currently $101. The trader who is long this call option has the right to buy the stock at

a.         $14.85

b.         $101

c.         $100

d.         $85.15

2. What is the lowest possible value of a non-dividend paying American-style call assuming markets are in equilibrium?

a.         max[0, S₀ – PV(X)]

b.         S₀

c.         max(0, S₀ – X)

d.         max[0, PV(S₀) – X]

3. Which of the following is the lowest possible value of an American-style put on a stock with no dividends assuming markets are in equilibrium?

a.         PV(X)

b.         X

c.         Max[0, PV(X) – S₀]

d.         Max(0, X – S₀)

4. In the single period binomial model, if a put option will expire in-the-money for both the up and down move, the hedge ratio will be

a.         0.5

b.         infinite

c.         1.0

d.         –1.0

Answer 1

1. Option c is correct. $100

The buyer of a call option has the right to buy the stock at the strike price, $100

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