ACT370 - Final Exam, 2008 Questions 1 and 2 relate to the following ...

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3. You are given call option prices of $12 and $8 for European options with strike prices of$50 and $60, respectively. The options expire at the same time and are on a non-dividendpaying stock. According to convexity of option prices, how many of the following prices arefeasible prices for a call option on the same stock and expiring at the same time with a strikeprice of $53? Feasible means that there are no arbitrage opportunities.I. $10 II. $10.50 III. $11 IV. $11.50A) None B) One C) Two D) Three E) All
Questions 4 and 5 relate to the following information. In a binomial branching model, the stockprice at time 0 is 120. At time 1, the stock price will be either 144 or 100. The annual effectiverisk free rate of interest from time 0 to time 1 is 3œÞ"! .4. A call option on the stock with exercise price 110 expires at time 1. Find the number ofshares of stock in the replicating portfolio at time 0.A) Less than .2 B) At least .2 but less than .4 C) At least .4 but less than .6D) At least .6 but less than .8 E) At least .85. Another stock is available that has a value of 100 at time 0. The stock price at time 1 is eitherF (when the first stock is 100) or "Þ#F (when the first stock is 144). Find the value of F thatresults in no arbitrage opportunities.A) Less than 80 B) At least 80 but less than 85 C) At least 85 but less than 90D) At least 90 but less than 95 E) At least 95
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Page 7 and 8: 9. A call option on a non-dividend
Page 9 and 10: 11. W " , the price of a stock at t
Page 13 and 14: ACT370, 2008 Final Exam Solutions1.
Page 15: 12. The put options have the same >

ACT370 - Final Exam, 2008 Questions 1 and 2 relate to the following ...

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