Finance > EXAM REVIEW > University of Illinois, Chicago - FIN 494exam prepared(5) (All)

University of Illinois, Chicago - FIN 494exam prepared(5)

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Question 1 1. Which of the following statements is true? If interest rate is positive and the stock pays no dividends then it is better to keep an American call option alive than to exercise it eve... n if it is far in the money It never makes sense to exercise an American put option early If a European option is priced below its lower bound, then the arbitrage includes borrowing at the risk-free rate Put-call parity holds for American options, just like it does for European options 10 points Question 2 1. You write a call option on Google. The current price of one share of Google is $400, the option strike price is $410, and the option premium is $5 (all prices are per share). On the expiration day, the price of Google is $425. The following statement is true: S0=400 X=410 ST=425 C=5 Write= -(St-X) -(425-410)= -15 The call is in the money Your payoff is negativeYour payoff is positive and equal to 10 A and B A and C 10 points Question 3 1. Given the following data as of the close of trading on 10/26/18: Quest Diagnostics (DGX): 91.47 Options on DGX: American, expire January 18, 2019 c X p 23.7 70 105 14.2 Which of the options in the table above is priced above its lower bound? Neither optionThe call The put Both options 10 points We can see that all the options are above their low [Show More]

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