Hull:Options,FuturesandOtherDerivatives,EighthEditionChapter15:TheBlack-Scholes-MertonModelMultipleChoiceTestBank:Questions1.WhichofthefollowingisassumedbytheBlack-Scholes-Mertonmodel?A.ThereturnfromthestockinashortperiodoftimeislognormalB.ThestockpriceatafuturetimeislognormalC.ThestockpriceatafuturetimeisnormalD.Noneoftheabove2.TheoriginalBlack-ScholesandMertonpapersonstockoptionpricingwerepublishedinwhichyear?A.1983B.1984C.1974D.19733.WhichofthefollowingisadefinitionofvolatilityA.Thestandarddeviationofthereturn,measuredwithcontinuouscompounding,inoneyearB.Thevarianceofthereturn,measuredwithcontinuouscompounding,inoneyearC.ThestandarddeviationofthestockpriceinoneyearD.Thevarianceofthestockpriceinoneyear4.Astockpriceis$100.Volatilityisestimatedtobe20%peryear.Whatisanestimateofthestandarddeviationofthechangeinthestockpriceinoneweek?A.$0.38B.$2.77C.$3.02D.$0.765.WhatdoesN(x)denote?A.TheareaunderanormaldistributionfromzerotoxB.TheareaunderanormaldistributionuptoxC.TheareaunderanormaldistributionbeyondxD.Theareaunderthenormaldistributionbetween-xandx6.Whichofthefollowingistrueforaone-yearcalloptiononastockthatpaysdividendseverythreemonths?A.ItisneveroptimaltoexercisetheoptionearlyB.ItcanbeoptimaltoexercisetheoptionatanytimeC.Itisonlyeveroptimaltoexercisetheoptionimmediatelyafteranex-dividenddateD.Noneoftheabove7.Whatisthenumberoftradingdaysinayearusuallyassumedforequities?A.365B.252C.262D.2728.Therisk-freerateis5%andtheexpectedreturnonanon-dividend-payingstockis12%.Whichofthefollowingisawayofvaluingaderivative?A.Assumethattheexpectedgrowthrateforthestockpriceis17%anddiscounttheexpectedpayoffat12%B.Assumingthattheexpectedgrowthrateforthestockpriceis5%anddiscountingtheexpectedpayoffat12%C.Assumingthattheexpectedgrowthrateforthestockpriceis5%anddiscountingtheexpectedpayoffat5%D.Assumingthattheexpectedgrowthrateforthestockpriceis12%anddiscountingtheexpectedpayoffat5%9.Whentherearetwodividendsonastock,Black’sapproximationsetsthevalueofanAmericancalloptionequaltowhichofth...
