CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

A stock is selling for $69.88. The risk-free rate is 5%.

Consider the following call options on this stock:
Call option A: Exercise price X = $70, Days to option expiration = 120.
Call option B: Exercise price X = $75, Days to option expiration = 120.

Which statement(s) is (are) true?

I. VEGAA > VEGAB
II. VEGAA < VEGAB
III. GAMMAA > GAMMAB
IV. GAMMAA < GAMMAB
A. I and III
B. II and III
C. I and IV
Explanation: Note that option A is near-the-money. Vega tends to be greatest for an option near-the-money, so I is correct.

Gamma is large when the option is near-the-money, so III is correct.

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