364 views

Uploaded by guystuff1234

© All Rights Reserved

- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch22.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch20.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch23.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch24.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch14.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch19.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch17.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch18.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch06.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch25.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch16.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch11.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch10.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch09.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch26.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch13.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch12.doc
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch17.doc
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch08.doc
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch25.doc

You are on page 1of 4

Multiple Choice Test Bank: Questions

1. How many nodes are there at the end of a Cox-Ross-Rubinstein five-step

binomial tree?

A. 4

B. 5

C. 6

D. 7

2. Which of the following cannot be estimated from a single binomial tree?

A. delta

B. gamma

C. theta

D. vega

3. Which of the following is true for u in a Cox-Ross-Rubinstein binomial tree?

A. It depends on the interest rate and the volatility

B. It depends on the volatility but not the interest rate

C. It depends on the interest rate but not the volatility

D. It depends on neither the interest rate nor the volatility

4. How many different paths are there through a Cox-Ross-Rubinstein tree with

four-steps?

A. 5

B. 9

C. 12

D. 16

5. When we move from assuming no dividends to assuming a constant dividend

yield, which of the following is true for a Cox, Ross, Rubinstein tree?

A. The parameters u and p change

B. p changes but u does not

C. u changes but p does not

D. Neither p nor u changes

6. When the stock price is 20 and the present value of dividends is 2, which of

the following is the recommended way of constructing a tree?

A. Draw a tree for an initial stock price of 20 and subtract the present

value of future dividends at each node

B. Draw a tree for an initial stock price of 22 and subtract the present

value of future dividends at each node

C. Draw a tree with an initial stock price of 18 and add the present value

of future dividends at each node

D. Draw a tree with an initial stock price of 18 and add 2 at each node

A. Make u a function of time

B. Make p a function of time

C. Make u and p a function of time

D. Make the lengths of the time steps unequal

8. What is the recommended way of making volatility a function of time in a

Cox, Ross, Rubinstein tree?

A. Make u a function of time

B. Make p a function of time

C. Make u and p a function of time

D. Make the lengths of the time steps unequal

9. A binomial tree prices an American option at $3.12 and the corresponding

European option at $3.04. The Black-Scholes price of the European option is

$2.98. What is the control variate price of the American option?

A. $3.06

B. $3.18

C. $2.90

D. $3.08

10.The chapter discusses an alternative to the Cox, Ross, Rubinstein tree. In this

alternative, which of the following are true:

A. The relationship between u and d is: u=1/d

B. The relationship between u and d is: u-1=1-d

C. The probabilities on the tree are all 0.5

D. None of the above

11.Which of the following cannot be valued by Monte Carlo simulation

A. European options

B. American options

C. Asian options (i.e., options on the average stock price)

D. An option which provides a payoff of $100 if the stock price is greater

than the strike price at maturity

12.Which of the following is true?

A. The implicit finite difference method relates prices at one node to three

prices at nodes at a later time

B. The implicit finite difference method relates prices at one node to three

prices at nodes at an earlier time

C. The implicit finite difference method relates prices at one node to three

prices at nodes at the same time

D. None of the above

A. The implicit finite difference method is equivalent to using a trinomial

tree

tree

C. Both methods are equivalent to using a trinomial tree

D. Neither method is equivalent to using a trinomial tree

14.The standard deviation of the values of an option calculated using 10,000

Monte Carlo trials is 4.5. The average of the values is 20. What is the

standard error of this as an estimate of the option price?

A. 4.5

B. 0.45

C. 0.045

D. 0.0045

15.The values of a stock price at the end of the second time step are $80, $100,

$125. The corresponding values of an option are $0, $5, and $20 respectively.

What is an estimate of gamma?

A. 0.136

B. 0.146

C. 0.156

D. 0.166

16.What is the difference between valuing an American and a European option

using a tree?

A. The value of u is higher for American options

B. The value of u is lower for American options

C. The time steps for American options are not equal

D. It is necessary to do two calculations at nodes where the option is in

the money

17.A European option on a stock with a known dollar dividend is valued by

setting the stock price variable equal to the stock price minus the present

value of the dividend in the Black-Scholes-Merton formula. A second price can

be obtained using the tree building procedure in the chapter. Which of the

following is true when a very large number of time steps are used in the tree?

A. The first price is higher than the second price

B. The first price is lower than the second price

C. The first price is sometimes higher and sometimes lower than the

second price

D. The two prices are almost exactly the same

18.Which of the following is possible in a modified Cox, Ross, Rubinstein binomial

tree?

A. The interest rate and volatility can both be functions of time

B. The interest rate or the volatility can be a function of time, but not

both

C. The interest rate can be a function of time but the volatility cannot

D. The interest rate and volatility must be constant

19.Which of the following describes the way that the parameters in a binomial

tree are chosen?

A. The expected return during each time step is the risk-free rate

B. The standard deviation of the return in each time step is, for small time

steps, almost exactly equal to the volatility per annum times the

square root of the length of the time step in years

C. The tree recombines

D. All of the above

20.Which of the following can be valued without using a numerical procedure

such as a binomial tree?

A. American put options on a non-dividend paying stock

B. American call options on a non-dividend paying tock

C. American call options on a currency

D. American put options on futures

- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch22.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch20.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch23.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch24.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch14.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch19.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch17.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch18.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch06.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch25.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch16.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch11.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch10.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch09.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch26.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch13.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch12.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch17.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch08.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch25.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch21.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch02.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch26.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch05.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch13.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch20.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch15.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch03.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch16.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch15.docUploaded byguystuff1234

- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch26.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch25.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch19.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch18.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch17.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch13.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch12.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch16.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch15.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch11.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch09.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch10.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch06.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch08.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch05.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch07.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch03.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch26.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch01.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch02.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_Only_Ch04.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch22.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch19.docUploaded byguystuff1234
- Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch18.docUploaded byguystuff1234

- Ch15HullOFOD9thEditionUploaded byseanwu95
- Tata Steel Options AssignmentUploaded bySaurabh Singh
- 2008 Final Review - Financial Update3Uploaded byfriendresh1708
- Heterogeneous Beliefs and the Option-implied Volatility SmileUploaded byteikkheong
- Insider_trading_and_share_repurchases_Do Insiders and Firms Trade in the Same DirectionUploaded byblacksmithMG
- Hw4 Mfe Au14 SolutionUploaded byWenn Zhang
- BEST-OPTION-NEWS-BY-THEEQUICOM-FINANCIAL-RESEARCH-PVT.-LTD.-FOR-TODAY-7-JAN-2013Uploaded bypankhudijain
- 20912 Lecture 14Uploaded byRENJiii
- Fin 416 Exam 2 Spring 2012Uploaded byfakeone23
- Pricing and Hedging of Japan Equity-Linked Power Reverse Dual NoteUploaded byFrank Fung
- Fins 2624 Quiz 10Uploaded byjon
- Engro notice scheme of emloyee stock options.pdfUploaded byFahad Mansoori
- Guide to Trading OptionsUploaded bynmooljee1538
- A Day in the Life of a NetPIcks Day TraderUploaded byMark Soberman
- Introduction to DerivativeUploaded byAbbasgodhrawala
- Options Weekly Paychecks System B v. 2Uploaded byopt1onsweekly
- Dilutive Securities and Earnings per ShareUploaded byRukia Kuchiki
- How to Take Profits in Bull and Bear MarketsUploaded bydinesh543
- Forex for newbiesUploaded bybent78
- Chapter 13 Stockholders Equity NotebookUploaded by10aleverson
- DRM-8 Exotic OptionsUploaded byqazxsw
- Black Scholes ModelUploaded byVarun Yadav
- CES Tax Guide - Tax Filing Basics for Stock Plan TransactionsUploaded byatulw
- How to Properly Price Earnings Implied Moves?Uploaded byjulienmessias2
- All or Nothing ValuationUploaded byEdicarmen
- Der Man 2003 Laughter in the DarkUploaded byprzemstil
- WP429_D2.pdfUploaded byKushtrim Kransici
- What is Implied VolatilityUploaded byUmesh Thakkar
- AE4Uploaded byimroz_alam
- Stock_Options_Compensation.pptUploaded byJomalyn Junio Saliente