If you are creating an option play that benefits from a VOLATILITY strategy, you expect the stock price to do what? ○ Go down Go up OR down, by a lot Go up O Remain right around its current price
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Q: Don't use chatgpt ,i will 5 upvotes[09/03, 07:31] Vijaya: 5 years ago, you purchased a 10-year par…
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- Who correctly identifies the effect of increases in volatility of the underlying asset on option prices? Johnny Kyle Linda Johnny Mike [↓ = decrease, t = increase] O Kyle O Linda Call price ↑ ↑ ↓ ↓ Mike Put Price ↑ ↓ ↓ ↑Who correctly identifies the effect of increases in volatility of the underlying asset on option prices? Johnny Kyle Linda Johnny Mike [↓ = decrease, ↑ = increase] O Kyle O Linda Call price ↑ ↑ ↓ ↓ Mike Put Price ↑ ↓ ↓ ↑2. In the context of binomial option pricing model, a decrease in the stock price volatility will reduce the current option value True or false
- Option Price and Interest Rates Suppose the interest rate on T-bills suddenly andunexpectedly rises. All other things being the same, what is the impact on call option values? Onput option values?Suppose stocks X and Y have equal current prices but different volatilities of returns, ax < øy; what would be more expensive: a call option on X or Y? Please discuss.Use the put-call parity relationship to demonstrate that an at-the-money call option on a nondividend-paying stock must cost more than an at-the-money put option. Show that the prices of the put and call will be equal if S0 = (1 + r)T..
- Consider the model of Black and Scholes. Consider the cash=or-nothing put option V (T) = 1{S(T)<= K} It pays out one unit of cash if the spot is below the strike at maturity. Evaluate the price of the option.In a binomial tree created to value an option on a stock, what is the expected return on the option? O Zero O The return required by the market O The risk-free rate O It depends on the volatility ALWhen the Black-Scholes and binomial tree models are used to value an option on a non- dividend-paying stock, which of the following is true? O The binomial tree price converges to a price above the Black-Scholes price as the number of time steps is increased O The binomial tree price converges to a price below the Black-Scholes price as the number of time steps is increased The binomial tree price converges to the Black-Scholes price as the number of time steps is increased O None of these ◄ Previous Next ▸
- Which of the following statements is true? A. Because of flotation costs, dollars raised by retaining earnings must work harder than dollars raised by selling new shares. B. All other things being equal, a call option price will increase, and a put option price will decrease if an exercise price increases. C. Security market line (SML) plots return against total risk which is measured by the standard deviation of returns. D. Because potential long-term returns, income from rent-payments, diversification, and inflation hedge, real-estate would be a good investment.If the time to expiration falls and the put price rises, then what has happened to the put option’s implied volatility?Which of the following strategy would you adopt if you expect the fall in prices of a stock? A. Buy a call B. Sell a call C. Sell a put D. Buy a future