Binomial Option Pricing

In binomial approach of option pricing model, the value of stock is subtracted from call option obligation value to calculate

• current value of portfolio

• future value of portfolio

• put option value

• call option value

Current value of stock in portfolio with current option price $20 is $50, then present value of portfolio would be

• 70

• 30

• 0.3

• 0.167

Value of stock is $250 and the call option obligation is $100 then the current value of portfolio would be

• 0.35 Times

• 350

• 150

• 2.5 Times

In binomial approach of option pricing model, the fourth step is to create

• equalize the domain of payoff

• equalize the ending price

• high risky investment

• riskless investment

Current value of portfolio is $550 and to cover an obligation of call option is $200 then the value of stock would be

• 350

• 750

• 2.75

• None Of above

Second step in binomial approach of option pricing is to define range of values

• at expiration

• at buying date

• at exchange closing time

• at exchange opening time

Risk on a stock portfolio which can be reduced by placing it in diversified portfolio is classified as

• stock risk

• portfolio risk

• diversifiable risk

• market risk

An increase in value of option leads to low present value of exercise cost only if it has

• low volatility

• interest rates are high

• interest rates are low

• high volatility

An amount invested is $4000 and dollar return is $300 then rate of return will be

• 4300

• 3700

• 7.5%

• 0.75%

In capital asset pricing model, stock with high standard deviation tend to have

• low variation

• low beta

• high beta

• high variation