17. In the Black-Scholes model, the symbol \"\'\" is used to represent the the:

Question

17. In the Black-Scholes model, the symbol "'" is used to represent the the: a. option premium on a call with a specified exercise price. b. rate of return on the underlying asset. c. volatility of the risk-free rate of return. d. rate of return on a risk-free asset. e. option premium on a put with a specified exercise price 18. Which one of the following statements is correct? a. The price of an American put is equal to the stock price minus the exercise price according to the Black-Scholes option pricing model. b. The value of a European put is greater than the value of a comparable American put. d. The value of a put minus the value of a comparab calliequa to thvale of the stock minus the exercise price. e. The value of an American put will equal or exceed the value of a comparable European put. 19. The Black-Scholes Option Pricing Model can be used for: a. American options but not European options. b. European options but not American options. c. call options but not put options d. put options but not call options. e. both zero coupon bonds and coupon bonds.

Explanation / Answer

17.c. Standard deviation in black scholes model is the implied volatility in the rate of return of the underlying asset.

18. E. The value of American put is equal to will exceed the vslue of comparable European put because of the time value of money as American puts are exercisable through out the life of the option.

19. B. The assumptions under Black Scholes option pricing model states that they can be used for European options only, they does not take into account American options.

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