Financial Management - Study Mode

[#646] According to Black Scholes model, trading of securities and stock prices moves respectively
Correct Answer

(D) continuously and randomly

Explanation

Solution: According to Black Scholes model, trading of securities and stock prices moves continuously and randomly respectively.

[#647] In binomial approach of option pricing model, last step for finding an option is
Correct Answer

(D) call price

Explanation

Solution: In binomial approach of option pricing model, last step for finding an option is call price. The call price is the price a bond issuer or preferred stock issuer must pay investors if it wants to buy back, or call, all or part of an issue before the maturity date.

[#648] Type of options that do not have stock in portfolio to back up options is classified as
Correct Answer

(C) naked options

Explanation

Solution: Type of options that do not have stock in portfolio to back up options is classified as naked options. Naked option refers to an option contract which does not comprise ownership of the underlying security by the purchasing or selling party.

[#649] Market value of option which is out-of-money is
Correct Answer

(A) greater than zero

Explanation

Solution: Market value of option which is out-of-money is greater than zero. The market price of the option is the price you pay when you buy the option and the price you get when you sell the option. The market price of the option consists of two parts, intrinsic value and time value.

[#650] Present value of portfolio is Rs 900 and current value of stock in portfolio is Rs 1500 then current option price would be
Correct Answer

(D) Rs 600.00

Explanation

Solution: Current option price = Current value of stock - Present value of portfolio = Rs. 1500 - Rs. 900 = Rs. 600.