True of False Questions: 1.PQR pays no dividends. An American put on PQR with st

Question

True of False Questions:

1.PQR pays no dividends. An American put on PQR with strike $10 is trading at $2:27, while another American put on PQR with the same expiration date and strike $11 is trading at $2:14. There is an arbitrage opportunity.

2. For an investor holding a bond portfolio, an increase in yields is typically bad news.

3. Consider a European call and a European put for the same non-dividend-paying stock,

same expiration T, and same strike X = FT0 which is the forward price of the underlying

for delivery date T. Under no arbitrage the two options have the same price today.

4.All else equal, if two stocks have identical rm-specic risk, a put option on a high-beta stock

worth more than one on a low-beta stock.

5. ABC pays no dividends and has a price of $20. Risk free rate is 10% for one year. An European

put option on ABC expiring next year with strike X = $12 is now currently trading at $11.

There is no arbitrage opportunity.

Explanation / Answer

T

F

F

T

F

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