1. What, to the nearest cent, is the lower bound for the price of a two-year European call option on a stock when the stock price is $20, the strike price is $15, and the risk-free interest rate with continuous compounding is 5% and there are no dividends?
2. Which of the following is true regarding a Grantor Retained Annuity Trust (GRAT)? provide explanation
At the end of the GRAT term, a taxable gift occurs.
If the grantor dies during the trust term, a pro rata portion of the trust assets will be included in the grantor’s estate.
Interest and dividends earned by assets in a GRAT are taxed to the grantor.
If the grantor survives the trust term, all of the trust assets will be included in the grantor’s estate.
3. A trader in Switzerland just agreed to trade Swiss francs for British pounds based on today's exchange rate. The trade is expected to settle tomorrow. What term best describes this exchange?
Arbitrage transaction
Interest rate parity
Spot trade
Forward trade
Purchasing power parity