TRUE OR FALSE

1. One should use a multiperiod binomial model to evaluate an American put option because the Black-Scholes formula does not allow for early exercise. (T or F)
2. The binomial option pricing model is a discrete time model. (T or F)
3. The Black-Scholes model is a discrete time model. (T or F)

MULTIPLE CHOICE

1. The Black-Scholes option pricing model employs which five parameters?

A. Stock price, exercise price, risk-free rate, variance, and time to maturity

B. Stock price, risk-free rate, probability of bankruptcy, variance, and exercise price

C. Stock price, risk-free rate, beta, time to maturity, and variance

D. Stock price, exercise price, risk-free rate, beta, and time to maturity

2. The writer (seller) of a regular exchange-listed call-option on a stock

A. has the obligation to sell 100 shares of the underlying stock at the exercise price.

B. has the obligation to buy 100 shares of the underlying stock at the exercise price.

C. has the right to sell 100 shares of the underlying stock at the exercise price.

D. has the right to buy 100 shares of the underlying stock at the exercise price.