QUESTION 21 Consider the following equation:C = S  N - PV(K)  NIn this equation, the term  represents: the annual volatility of the stock. the expected return on the stock. the number of years to expiration. the number of days to expiration. 3 points QUESTION 22 The market price of an option is called the: exercise price. option premium. European currency. American insurance. 3 points QUESTION 23 Which of the following will NOT increase the value of a put option? A decrease in the stock's volatility A decrease in the stock price An increase in the exercise price An increase in the time to expiration 3 points QUESTION 24 Using options to reduce risk is called: speculation. a naked position. hedging. a covered bar position. 3 points QUESTION 25 An option strategy in which you hold a long position in both a put and a call option with the same strike price is called: a strangle. a butterfly spread. a straddle. covered call. 3 points QUESTION 26 When the stock price increases with all else remaining the same, both calls and puts increase in value. True False 2 points QUESTION 27 The current price of MB Industries stock is $20 per share. In the next year the stock price will either go up to $24 per share or go down to $16 per share. MB pays no dividends. The one year risk-free rate is 5 percent and will remain constant. Using the one-step binomial pricing model, what is the price of a one-year PUT option on MB stock with a strike price of $20 (out to two decimal places)? 3 points QUESTION 28 The current price of MB Industries stock is $20 per share. In the next year the stock price will either go up to $24 per share or go down to $16 per share. MB pays no dividends. The one year risk-free rate is 5 percent and will remain constant. Using the one-step binomial pricing model, what is the price of a one-year CALL option on MB stock with a strike price of $20 (out to two decimal places)?