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Suppose that we have some Bank of China shares that are currently trading on the Hong Kong Stock Exchange at HKD4.41. Our view is that the Bank of China’s stock price will be steady for the next three months, so we decide to sell some three- month out- of- the- money calls with exercise price at 4.60 in order to enhance our returns by receiving the option premium. Risk- free government securities are paying 1.60% and the stock is yielding HKD 0.24%. The stock volatility is 28%. We use the BSM model to value the calls. Which statement is correct? The BSM model inputs (underlying, exercise, expiration, risk- free rate,dividend yield, and volatility)are:

A. 4.60, 4.41, 3, 0.0160, 0.0024, and 0.28.
B. 4.41, 4.60, 0.25, 0.0160, 0.0024, and 0.28.
C. 4.41, 4.41, 0.3, 0.0160, 0.0024, and 0.28.

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An analyst wants to price a 1-year, European-style call option on company CZC’s stock using the Black-Scholes-Merton (BSM) model. CZC announces that it will pay a dividend of USD 0.50 per share on an ex-dividend date 1 month from now and has no further dividend payout plans for at least 1 year. The relevant information for the BSM model inputs are in the following table.Current stock price: USD 40Stock price volatility: 16% per yearRisk-free rate: 3% per yearCall option exercise price: USD 40$N(d_1)$: 0.5750$N(d_2)$: 0.5116What is the price of the 1-year call option on the stock?

A. USD 1.52
B. USD 1.78
C. USD 1.95
D. USD 2.85

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An analyst wants to price a 1-year, European-style call option on company REX’s stock using the Black-Scholes-Merton (BSM) model. REX announces that it will pay a dividend of USD 1.25 per share on an ex-dividend date 1 month from now and has no further dividend payout plans. The relevant information for the BSM model inputs are in the following table.Current stock price (S0 ): USD 60Stock price volatility (σ ): 12% per yearRisk-free rate (r): 3.5% per yearCall option exercise price (K): USD 60$N(d_1)$: 0.570143$N(d_2)$ 0.522623What is the price of the 1-year call option on the stock?

A. USD 2.40
B. USD 3.22
C. USD 3.97
D. USD 4.81

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A foreign currency is valued at ＄200.71. The foreign currency has a European call option market price of ＄13.55 and a strike price of ＄225. In the US, the risk-free interest rate is 4% per annum and 7% per annum in the foreign country. Determine the price of a European put option with a 1-year maturity for the foreign currency.

A. ＄14.68
B. ＄13.55
C. ＄42.59
D. ＄15.48

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If a bank manager wants to protect the bank against losses that would be incurred on its portfolio of treasurysecurities should interest rates rise, he could

A. sell call options on T-bond futures.
B. buy call options on T-bond futures.
C. buy put options on T-bond futures.
D. sell put options on T-bond futures.

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A. 4.60, 4.41, 3, 0.0160, 0.0024, and 0.28. B. 4.41, 4.60, 0.25, 0.0160, 0.0024, and 0.28. C. 4.41, 4.41, 0.3, 0.0160, 0.0024, and 0.28.

If a bank manager wants to protect the bank against losses that would be incurred on its portfolio of treasurysecurities should interest rates rise, he could

A. 4.60, 4.41, 3, 0.0160, 0.0024, and 0.28.
B. 4.41, 4.60, 0.25, 0.0160, 0.0024, and 0.28.
C. 4.41, 4.41, 0.3, 0.0160, 0.0024, and 0.28.