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MFE Financial Derivatives Homework 5 (Chapters 9 and 10) Multiple Choice P1

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MFE Financial Derivatives Homework 5 (Chapters 9 and 10)

Multiple Choice

Identify the choice that best completes the statement or answers the question.

1 Which of the following would have the same value at t = 0 as an at-the-money call option on a forward contract

priced at FT (the forward price at time = 0)?

A) A put option on the forward at the same exercise price.

B) A put option, long the underlying asset, and short a risk-free bond that pays X-F T at

option expiration.

C) A put option, long the underlying asset, and short a risk-free bond that pays X at option

expiration.

D) A put option, short the underlying asset, and long a risk-free bond that pays X at option

expiration.

2 Referring to put-call parity, which one of the following alternatives would allow you to create a synthetic stock

position?

A) Sell a European call option; buy a European put option; short the present value of the

exercise price worth of a riskless pure-discount bond.

B) Buy a European call option; buy a European put option; invest the present value of the

exercise price in a riskless pure-discount bond.

C) Buy a European call option; short a European put option; invest the present value of the

exercise price in a riskless pure-discount bond.

D) Buy a European call option; buy a European put option; short the present value of the

exercise price in a riskless pure-discount bond.

3 Which of the following options will NOT be exercised early?

A) Put on a dividend paying stock C) Put on a non-dividend paying stock

B) Call on a dividend paying stock D) Call on a non-dividend paying stock

4 Which of the following statements regarding an option prior to expiration is most accurate? The maximum value of

a(n):

A) European call is greater than the maximum...

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