In each of the following, you are asked to compare two options with parameters as given. The risk-free interest rate for all cases should be assumed to be 4%. Assume the stocks on which these options are written pay no dividends.
1. Which put option is written on the stock with the lower price?
Put T X ? Price of Option
A 0.5 50 0.20 10
B 0.5 50 0.25 10
2. Which put option must be written on the stock with the lower price?
Put T X ? Price of Option
A 0.5 50 0.20 10
B 0.5 50 0.20 12
3. Which call option must have the lower time to expiration?
Call S X s Price of Option
A 50 50 0.20 12
B 55 50 0.20 10
A. A.
B. B
4. Which call option is written on the stock with higher volatility?
Call T X S Price of Option
A 0.5 50 55 10
B 0.5 50 55 12
A. A.
B. B.
5. Which call option is written on the stock with higher volatility?
Call T X S Price of Option
A 0.5 50 55 10
B 0.5 55 55 7
A. A
B. B
Answers: 3
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