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Question 1 1/1 pts You have 40 years until retirement and currently have all your wealth invested in the stock market. Very roughly speaking, an extra 1% return per year in the stock market has what effect on your wealth at retirement? Increases wealth by 50% Increases wealth by 1% Increases wealth by 25% Increases wealth by 25%. Increases wealth by 100% Decreases wealth Question 2 1/1 pts Using historical daily closing prices, You determine the daily sample standard deviation for Apple (ticker: AAPL) is 1.58%. What is the annual sample standard deviation (volatility) for Apple? 25.08% 398.16% 576.70% 18.96% Question 3 1/1 pts You are given the following information for a one-period binomial tree Each period is one year The current price of the stock S = 100 The stock pays dividends at a rate proportional to its price with the dividend yield d = 2% The continuously compounded risk-free interest rate is r u = 1.3, where Su is the stock price if the stock price goes up d = 0.7, where Sd is is the stock price if the stock price goes down The current premium of a one-year at-the-money put option is 12.82 Immediately after purchasing the put option, the stock price drops to 95. Assuming that u, d, r, and the strike price of the put option remain unchanged, recalculate the premium of the put option. 14.32 16.82 18.32 12.82 20.82 Question 4 1/1 pts Recall that a straddle position is a long call option plus a long put option with the same strike price and same expiration date. For a one-year straddle on a nondividend paying stock, you are given: The straddle can only be exercised at the end of one year. The payoff of the straddle is the absolute value of the difference between the strike price and the stock price at expiration date. The stock currently sells for $60.00. The continuously compounded risk-free interest rate is 8%. In one year, the stock will either sell for $70.00 or $45.00. The options have a strike price of $50.00. Using a one-period binomial options pricing model, calculate the current price of the straddle. $15.69 $4.80 $9.30 $14.80 $0.90 Question 5 1/1 pts Let S(t) be the time-t price of the stock. For a one-period binomial model, you are given: Each period is 3 years. The current price for a stock $100 The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3% The stock price at the end of three years is if the stock price goes up, where if the stock price goes down, where The continuously compounded risk-free annual interest rate is 6%. Consider a derivative that at the end of three years pays Calculate the number of shares of stocks an investor must purchase at time O in order to replicate the derivative. 15,423 shares 13,882 shares 14,095 shares 15,673 shares 16,875 shares Question 6 1/1 pts For a two-period binomial model for stock prices, you are given: Each period is one year. The current price of the stock is $100. The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3%. The continuously compounded risk-free interest rate is 5%. u = 1.1, where S goes from Sto Su during each period if the stock price goes up d = 0.9, where Sgoes from Sto Sd during each period if the stock price goes down A two-year European put option on the stock has a strike price K, where K

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