S0 = 23 X = 20 rc = 0.09 T = 0.5 2 = 0.15 No dividends are expected.

S0 = 23 X = 20
rc = 0.09 T = 0.5
2 = 0.15
No dividends are expected.

What value does the Black-Scholes-Merton model predict for the call? (Due to differences in rounding your calculations may be slightly different. "none of the above" should be selected only if your answer is different by more than 10 cents.)

a. 5.35
b. 1.10
c. 4.73
d. 6.50
e. none of the above

Answer: C

If we now assume that the stock pays a dividend at a known constant rate of 3.5 percent, what stock price should we use in the model? (Due to differences in rounding your calculations may be slightly different. "none of the above" should be selected only if your answer is different by more than 10 cents.)

a. 22.60
b. 19.65
c. 23.00
d. 21.99
e. none of the above


Answer: A 

The relationship between the option price and the exercise price is called

The relationship between the option price and the exercise price is called 

a. the gamma
b. the vega
c. the omega
d. the zeta
e. none of the above




Answer: E

Which of the following statements about the volatility is not true?

Which of the following statements about the volatility is not true? 

a. the implied volatility often differs across options with different exercise prices
b. the implied volatility equals the historical volatility if the option is correctly priced
c. the implied volatility is determined by trial and error
d. the implied volatility is nearly linearly related to the option price
e. none of the above




Answer: B

Which of the following "Greeks" is not a measure of the option's sensitivity to a change in one of its input values?

Which of the following "Greeks" is not a measure of the option's sensitivity to a change in one of its input values? 

a. delta
b. gamma
c. rho
d. theta
e. sigma





Answer: C

Which of the following statements about the delta is not true?

Which of the following statements about the delta is not true? 

a. it ranges from zero to one
b. it converges to zero or one at expiration
c. it is given by N(d1) in the Black-Scholes-Merton model
d. it changes slowly near expiration if the option is at-the-money
e. none of the above



Answer: D

Which of the following characteristics of the Black-Scholes-Merton model is not correct?

Which of the following characteristics of the Black-Scholes-Merton model is not correct?

a. it is a discrete time model
b. it is the limit of the binomial model
c. it is a continuous time model
d. it gives the price of a European option
e. none of the above





Answer: A