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Q5. Joel Franklin, CFA has just been promoted to junior portfolio manager for a large equity portfolio at Grant Investments, a large multinational investment banking firm. He is specifically responsible for the development of a new investment strategy that Grant Investments wants all equity portfolios to implement. Grant Investments has decided to begin overlaying option strategies on all equity portfolios. The reason for this decision is the relatively poor performance of many of their equity portfolios. They look at the option strategies as an opportunity to add value or reduce risk. Franklin recognizes that the behavior of an option's value is dependent on many variables and decides to spend some time closely analyzing this behavior. His analysis has resulted in the information shown in Exhibits 1 and 2 for European style options.
Exhibit 1: Input for European Options
|
Stock Price (S) |
100 |
|
Strike Price (X) |
100 |
|
Interest Rate (r ) |
7% |
|
Dividend Yield (q) |
0% |
|
Time to Maturity (years) (t) |
1 |
|
Volatility (Std. Dev.) (sigma) |
20% |
|
Black-Scholes Put Option Value |
$4.78 |
Exhibit 2: European Option Sensitivities
|
Sensitivity |
Call |
Put |
|
Delta |
0.67 |
-0.33 |
|
Gamma |
0.02 |
0.02 |
|
Theta |
-3.98 |
2.55 |
|
Vega |
36.05 |
36.05 |
|
Rho |
55.82 |
-37.41 |
Franklin recognizes that his software only includes the valuation information for European style options. He wants to know how the premium of an American style option compares with its European counterpart. Which of the following is most accurate? The premium of the American option is:
A) strictly higher.
B) strictly lower.
C) the same or higher.
Q6. 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 European option will normally have a higher option premium because of their relative scarcity compared to American options.
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.
Q7. Which of the following statements about options is least accurate?
A) Option prices are generally higher the longer the time until the option expires.
B) If an American option is exercised at expiration, its value will be less than that of a European option
C) For put options, the higher the strike price relative to the stock's underlying price, the more the put is worth.
Q8. Which of the following statements about the early exercise of an option is least accurate? For an American:
A) put option on an asset with no cash flows, early exercise is sometimes optimal.
B) call option on an asset with positive cash flows, early exercise is sometimes profitable.
C) call option, on an asset with no cash flows, early exercise can be profitable if the option is far in the money.
Q9. Compared to European put options on an asset with no cash flows, an American put option:
A) will have the same lower bound on its price.
B) will have a lower, lower bound on its price.
C) will have a higher, lower bound on its price.
Q10. Compared to European call options on an asset with no cash flows, an American call option:
A) will have a higher, lower bound on its price.
B) will have a lower, lower bound on its price.
C) will have the same lower bound on its price.
[此贴子已经被作者于2009-3-2 11:01:43编辑过] | 
发表于 2009-3-2 11:01
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