QUESTION 1

"We consider one ""underlying"" risky security (it can be a stock or exchange rate), and we use S to denote its price, with S0 = 100 being its current price and ST being its future price at Time T. Ignore bid-ask spread and transaction cost and assume that you can buy or sell any amount of the security at the price S0 =100. A long call option position with strik K=80 and expiry T, How much is the payoff when the option is exercised at expiry T if the security price ST at expiry is 100? ______________ What is the payoff if ST is 70? _____________ What is the payoff if ST is 120? ______________ " 30 points

QUESTION 2 "If you are a long put option with strike K=80 and with expiry T, what is the option's intrinsic value? (assume 0 rates or dividends)"________________ 10 points

QUESTION 3 "If you want to replicate the forward contract with calls and puts at delivery price K=80 and expirey T, how will you do it? call and_____________ put to_____________ create a long forward. ___________call and______________ put to create a short forward position. (Please write ""long"" or ""short"") " 20 points

QUESTION 4 "Assume zero rates and no dividends, the forward price is $100. If the call and the put (at K=80 and same T) are quoted at $26 and $5, respectively. There is an arbitrage and you can lock in an arbitrage profit by _____________call,______________ put, and__________ forward all at K=80 and expiry (Please write ""buy"" or ""sell""). How much will be the arbitrage profit in US dollar?_____________ (Please write the answer in integers ) "

QUESTION 5 An option is said to be in-the-money spot if the option has positive value when exercised right now. True False 10 points

QUESTION 6 American options can only be exercised at the expiry. True False