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I.True or False Questions 1.A put option with a strike price
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# Question : I.True or False Questions 1.A put option with a strike price : 1400608

I.True or False Questions

1.A put option with a strike price of \$20 is expiring today. The stock is currently selling at \$25. Based on this information, the put option should not be exercised.

a.True

b.False

2.A stock is selling for \$50 today. A call option on the stock with a strike price of \$50 is set to expire next month. If the price of the stock goes down tomorrow we would expect the price of the call option to go down as well.

a.True

b.False

3.A call option can sometimes be priced higher than the underlying asset.

a.True

b.False

4.Neither a call nor a put option can have a negative price.

a.True

b.False

5.The current price of an asset is \$75. A put option on the asset with a strike price of \$100 expires one year from now. It is possible, without arbitrage, for this put option to be priced at \$24 today.

a.True

b.False

6.If the risk-free rate of interest increases, all else being equal, we would expect the value of a call option to increase.

a.True

b.False

7.In the binomial pricing model, an option is priced using a replicating portfolio that typically consists of a risk-free bond and the asset underlying the option.

a.True

b.False

8.To price an option using the binomial pricing model, it is important that we know the probability that the asset will increase in value.

a.True

b.False

9.When using the binomial pricing model to price an option, the volatility of the underlying asset is represented by the difference between the two possible future values of the underlying asset.

a.True

b.False

10.Consider a call option on a stock with a strike price of \$60. If the stock price at expiration is \$50, the payoff from the call option is \$10.

a.True

b.False

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