Which of the following creates a bear spread? ( )
A. Buy a low strike price put and sell a high strike price put
Buy a high strike price put and sell a low strike price put
C. Buy a high strike price call and sell a low strike price put
D. Buy a high strike price put and sell a low strike price call
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What is the number of different option series used in creating a butterfly spread? ( )
A. 1
B. 2
C. 3
D. 4
In a binomial tree created to value an option on a stock, the expected return on stock is ( )
A. Zero
B. The return required by the market
C. The risk-free rate
D. It is impossible to know without more information
In a binomial tree created to value an option on a stock, what is the expected return on the option? ( )
A. Zero
B. The return required by the market
C. The risk-free rate
D. It is impossible to know without more information
A stock is expected to return 10% when the risk-free rate is 4%. What is the correct discount rate to use for the expected payoff on an option in the real world? ( )
A. 4%
B. 10%
C. More than 10%
D. It could be more or less than 10%