Chapter 13 Valuing Stock Options: The BSM Model
1) Which of the next is assumed by the Black-Scholes-Merton mannequin? A) The return from the inventory in a brief time frame is lognormal B) The inventory worth at a future time is lognormal C) The inventory worth at a future time is regular D) Not one of the above 2) The unique Black-Scholes and Merton papers on inventory possibility pricing have been revealed wherein 12 months? A) 1983 B) 1984 C) 1974 D) 1973 three) Which of the next is a definition of volatility? A) The usual deviation of the return, measured with steady compounding, in one 12 months B) The variance of the return, measured with steady compounding, in a single 12 months C) The usual deviation of the inventory worth in a single 12 months D) The variance of the inventory worth in a single 12 months four) A inventory worth is $100. Volatility is estimated to be 20% per 12 months. What's an estimate of the usual deviation of the change within the inventory worth in a single week? A) $Zero.38 B) $2.77 C) $three.02 D) $Zero.76 5) What does N(x) denote? A) The world underneath a standard distribution from zero to x B) The world underneath a standard distribution as much as x C) The world underneath a standard distribution past x D) The world underneath the conventional distribution between -x and x 6) Which of the next is true when there are dividends? A) It's by no means optimum to train a name possibility on the inventory early B) It may be optimum to train a name possibility at any time C) It is just ever optimum to train a name possibility instantly after an ex-dividend date D) Not one of the above 7) What's the variety of buying and selling days in a 12 months often assumed for equities? A) 365 B) 252 C) 262 D) 272 eight) The chance-free charge is 5% and the anticipated return on a non-dividend-paying inventory is 12%. Which of the next is a manner of valuing a by-product? A) Assume that the anticipated progress charge for the inventory worth is 17% and low cost the anticipated payoff at 12% B) Assuming that the anticipated progress charge for the inventory worth is 5% and discounting the anticipated payoff at 12% C) Assuming that the anticipated progress charge for the inventory worth is 5% and discounting the anticipated payoff at 5% D) Assuming that the anticipated progress charge for the inventory worth is 12% and discounting the anticipated payoff at 5% 9) When there are two dividends on a inventory, Black's approximation units the worth of an American name possibility equal to which of the next? A) The worth of a European possibility maturing simply earlier than the primary dividend B) The worth of a European possibility maturing simply earlier than the second (closing) dividend C) The better of the values in A and B D) The better of the worth in B and the worth assuming no early train 10) Which of the next is measured by the VIX index? A) Implied volatilities for inventory choices buying and selling on the CBOE B) Historic volatilities for inventory choices buying and selling on CBOE C) Implied volatilities for choices buying and selling on the S&P 500 index D) Historic volatilities for choices buying and selling on the S&P 500 index 11) What was the unique Black-Scholes-Merton mannequin designed to worth? A) A European possibility on a inventory offering no dividends B) A European or American possibility on a inventory offering no dividends C) A European possibility on any inventory D) A European or American possibility on any inventory 12) A inventory gives an anticipated return of 10% per 12 months and has a volatility of 20% per 12 months. What's the constantly compounded anticipated return in a single 12 months? A) 6% B) eight% C) 10% D) 12% 13) An investor has earned 2%, 12% and -10% on fairness investments in successive years (yearly compounded). That is equal to incomes which of the following yearly compounded charges for the three 12 months interval. A) 1.33% B) 1.23% C) 1.13% D) Zero.93% 14) Which of the next is NOT true? A) Danger-neutral valuation assumes that traders are danger impartial B) Choices could be valued based mostly on the belief that traders are danger impartial C) In risk-neutral valuation the anticipated return on all funding belongings is about equal to the risk-free charge D) In risk-neutral valuation the risk-free charge is used to low cost anticipated money flows 15) Which of the next is a manner of extending the Black-Scholes-Merton components to worth a European name possibility on a inventory paying a single dividend? A) Scale back the maturity of the choice in order that it equals the time of the dividend B) Subtract the dividend from the inventory worth C) Add the dividend to the inventory worth D) Subtract the current worth of the dividend from the inventory worth 16) When the Black-Scholes-Merton and binomial tree fashions are used to worth an possibility on a non-dividend-paying inventory, which of the next is true? A) The binomial tree worth converges to a worth barely above the Black-Scholes-Merton worth because the variety of time steps is elevated B) The binomial tree worth converges to a worth barely beneath the Black-Scholes-Merton worth because the variety of time steps is elevated C) Both A or B could be true D) The binomial tree worth converges to the Black-Scholes-Merton worth because the variety of time steps is elevated 17) When the non-dividend paying inventory worth is $20, the strike worth is $20, the risk-free charge is 6%, the volatility is 20% and the time to maturity is three months, which of the next is the value of a European name possibility on the inventory? A) 20N(Zero.1)-19.7N(Zero.2) B) 20N(Zero.2)-19.7N(Zero.1) C) 19.7N(Zero.2)-20N(Zero.1) D) 19.7N(Zero.1)-20N(Zero.2) 18) When the non-dividend paying inventory worth is $20, the strike worth is $20, the risk-free charge is 5%, the volatility is 20% and the time to maturity is three months, which of the next is the value of a European put possibility on the inventory? A) 19.7N(-Zero.1)-20N(-Zero.2) B) 20N(-Zero.1)-20N(-Zero.2) C) 19.7N(-Zero.2)-20N(-Zero.1) D) 20N(-Zero.2)-20N(-Zero.1) 19) A inventory worth is 20, 22, 19, 21, 24, and 24 on six successive Fridays. Which of the next is closest to the volatility every year estimated from this information? A) 50% B) 60% C) 70% D) 80% 20) The volatility of a inventory is 18% per 12 months. What's the volatility per 30 days? A) 1.5% B) three.Zero% C) 5.2% D) Not one of the above