Explain how and why an increase in each of the following affects the prices of both call and put options, holding all other variables constant: i. The current stock price  ii. The strike price

1. How does the binomial model account of volatility in the stock?

A stock's internal rate of return (IRR) is the discount rate that cause the present value of future dividends and the price at which a stock is expected to be sold to equal the current price of the stock. O True O False C

Apart from using PE ratio, what is another way of valuing the stock price? if we have the EPS, Share Price, Dividend Per Share, ROE and the discount rate (R).  And what are the assumptions and the limitations of this model? Is it the PEG ratio or not??

In Shiller’s terminology, what are ex post stock prices?

What are the two sources, or components of return for stock?

I Select the three (3) correct answers: A) Long futures Profit = Pt - FO B Profit Profit and Pt are inversely related. Long futures Profit = FO - Pt Profit and Pt are directly related. (E) The graph reflects an upward sloping curve. Fo - PT

Provide a numerical example of an arbitrage strategy for situations where the forward is trading above, and below the theoretical forward price.

in options trading, margin must be posted by______

4. Valuation of a Derivative Consider a derivative on a stock with the time to expiration T and the following payoff: 0 K₁ 0 if ST K₁. What is the present value of the derivative? Provide an analytic expression of the price using N(), the cumulative probability distribution function of a standard normal random variable.