Test Bank: Chapter 10 Properties of Stock Options Which of the following are always positively related to the price of a European call option on a stock (circle three) (a) The stock price (b) The strike price (c) The time to expiration (d) The volatility (e) The risk-free rate (f) The magnitude of dividends anticipated during the life of the option What, to the nearest cent, is the lower bound for the price of a two-year European call option on a stock when the stock price is $20, the strike price is $15, and the risk-free interest rate with continuous compounding is 5% and there are no dividends? _ _ _ _ _ _ What is the answer to question if the option is American? _ _ _ _ _ _ What, to the nearest cent, is the lower bound for the price of a six-month European put option on a stock when the stock price is $40, the strike price is $46 and the risk-free interest rate with continuous compounding is 6%? _ _ _ _ _ _ What is the answer to question if the option is American? _ _ _ _ _ _ The price of a European call option on a non-dividend-paying stock with a strike price of $50 is $6 The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year What, to the nearest cent, is the price of a one-year European put option on the stock with a strike price of $50? _ _ _ _ _ _ What is the answer to question if a dividend of $1 is expected in six months? A call and a put on a stock have the same strike price and time to maturity At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4 At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities As a result the price of the call changes to $4.50 What would you expect the price of the put to change to? _ _ _ _ _ _