MULTIPLE CHOICE Behavior Asset Model Pricing, Time series regression For the following three questions consider a BAPM with N = 3 and the following information: So = 120 S(H) = 128, S (T) = 112.50 S2(HH) = 136.53, S2(HT) = S(TH) = 120, S2(TT) = 105.47 S3(HHH) = 145.64, S3(HHT) = S(HTH) = S(THH) = 128, S3(HTT) = S(THT) = Sz(TTH) = 112.50, S3(TTT) = 98.88 The risk-free interest rate is 0.015 (1.5%) per period and the risk-neutral probability of the stock appreciating in a period is 0.6. Consider options maturing at the end of the three periods and a strike of 125. 3. (3 points) Consider an American put and a European put with expiration N = 3 and strike K = 125 A. The price of the American put is above $6.00 and the European put is below $5.50. B. The price of the American put is below $5.50 and the European put is above $6.00. C. The price of both the American and the European put are above $6.00. D. The price of both the American and the European put are below $5.50. 4. (3 points) The optimal time of exercise of the American put is A. (HHH) = T(HHT) = T(HTH) = 00, T(HTT) = T(THH) = T(THT) = T(TTH) = T(TTT) = 1 B. (HHH) = T(HHT) = T(HTH) = T(HTT) = T(THH) = T(THT) = T(TTH) = T(TTT) = 1 C. (HHH) = T(HHT) = T(HTH) = , 7(HTT) = 3, T(THH) = T(THT) = T(TTH) = T(TTT) = 1 D. T(TTT) = T(TTH) = 3, 7(THH) = T(THT) = 2,7(HHH) = T(HHT) = T(HTH) = T(HTT) = 0 MULTIPLE CHOICE Behavior Asset Model Pricing, Time series regression For the following three questions consider a BAPM with N = 3 and the following information: So = 120 S(H) = 128, S (T) = 112.50 S2(HH) = 136.53, S2(HT) = S(TH) = 120, S2(TT) = 105.47 S3(HHH) = 145.64, S3(HHT) = S(HTH) = S(THH) = 128, S3(HTT) = S(THT) = Sz(TTH) = 112.50, S3(TTT) = 98.88 The risk-free interest rate is 0.015 (1.5%) per period and the risk-neutral probability of the stock appreciating in a period is 0.6. Consider options maturing at the end of the three periods and a strike of 125. 3. (3 points) Consider an American put and a European put with expiration N = 3 and strike K = 125 A. The price of the American put is above $6.00 and the European put is below $5.50. B. The price of the American put is below $5.50 and the European put is above $6.00. C. The price of both the American and the European put are above $6.00. D. The price of both the American and the European put are below $5.50. 4. (3 points) The optimal time of exercise of the American put is A. (HHH) = T(HHT) = T(HTH) = 00, T(HTT) = T(THH) = T(THT) = T(TTH) = T(TTT) = 1 B. (HHH) = T(HHT) = T(HTH) = T(HTT) = T(THH) = T(THT) = T(TTH) = T(TTT) = 1 C. (HHH) = T(HHT) = T(HTH) = , 7(HTT) = 3, T(THH) = T(THT) = T(TTH) = T(TTT) = 1 D. T(TTT) = T(TTH) = 3, 7(THH) = T(THT) = 2,7(HHH) = T(HHT) = T(HTH) = T(HTT) = 0