[2008]Topic 16: Properties of Stock Options相关习题 stock, following, increase, discuss

Baran

AIM 1: Identify the six factors that affect an option’s price and discuss how these six factors affect the price for both European and American options.

1、Which of the following has the same impact on both American call and put option prices?

      I. An increase in volatility.
     II. An increase in the stock price.
    III. An increase in the risk-free rate.
    IV. A decrease in time to expiration.

A) I only.
 
B) I and IV.
 
C) I and II.
 
D) I and III.

Baran

The  correct answer is B

Increased volatility positively influences put and call option values, while a decrease in time to expiration will negatively influence call and put prices. Note that an increase in the stock price and an increase in the risk-free rate will cause the price of an American call to increase but will cause the price of an American put to decrease.

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2、Put option values increase as a result of increases in which of the following factors?

  I. Volatility.
 II. Dividends.
III. Stock Price.
IV. Time to expiration.
A) I, III, and IV only. 
 
B) I, II, and IV only. 
 
C) II and IV only. 
 
D) I and III only. 

Baran

The  correct answer is B
Put option values decrease as stock prices increase.

Baran

AIM 2: Identify, interpret and compute upper and lower bounds for option prices.

1、ABEX Corporation common stock is selling for $50.00 per share. Both an American call option and a European call option are available on ABEX common, and each have identical strike prices and expiration dates. Which of the following statements concerning these two options is TRUE?

 

A) Because the American and European options have identical terms and are written against the same common stock, they will have identical option premiums.
 
 
B) The American option will have a higher option premium, because the American security markets are larger than the European markets.
 
 
C) The greater flexibility allowed in exercising the American option will normally result in a higher market value relative to an otherwise identical European option.
 
 
D) The European option will normally have a higher option premium because of their relative scarcity compared to American options.

Baran

The  correct answer is C

Trading in European options is considerably less than trading in American options, because demand for them is much lower. This is due to their relative inflexibility regarding when they can be exercised. The greater exercising flexibility of American options gives them increased value to traders, which normally results in a greater market value relative to an otherwise identical European option.

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2、What is the primary difference between an American and a European option?

 

A) The European option can only be traded on overseas markets. 
 
B) The American option can be exercised at anytime on or before its expiration date.
 
C) American and European options always have different strike prices when written on the same underlying asset. 
 
D) American and European options are never written on the same underlying asset. 

Baran

The  correct answer is B

American and European options are virtually identical, except exercising the European option is limited to its expiration date only. The American option can be exercised at anytime on or before its expiration date. For the exam, the key concept relating to this difference is the value of the American option must be equal or greater than the value of the corresponding European option, all else being equal.

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3、Consider a call option on a stock currently priced at $50 with a strike price of $55. Which of the following CANNOT be the price of the call option?

A) $10.
 
B) $15.
 
C) $55.
 
D) $50.

Baran

The  correct answer is C

The upper bound on a European call option is the stock price, so it can’t be worth $55.