Which one of the following statements related to the implied standard deviation (ISD) is correct?

Which one of the five factors included in the Black-Scholes model cannot be directly observed?    A.  risk-free rate B.  strike price C.  standard deviation D.  stock price E.  life of the option Refer to section 25.3

35.

Which one of the following statements related to the implied standard deviation (ISD) is correct?    A.  The ISD is an estimate of the historical standard deviation of the underlying security. B.  ISD is equal to (1 - D1). C.  The ISD estimates the volatility of an option's price over the option's lifespan. D.  The value of ISD is dependent upon both the risk-free rate and the time to option expiration. E.  ISD confirms the observable volatility of the return on the underlying security. Refer to section 25.3

36.

The implied standard deviation used in the Black-Scholes option pricing model is:    A.  based on historical performance. B.  a prediction of the volatility of the return on the underlying asset over the life of the option. C.  a measure of the time decay of an option. D.  an estimate of the future value of an option given a strike price (E). E.  a measure of the historical intrinsic value of an option. Refer to section 25.3

37.

The value of an option is equal to the:    A.  intrinsic value minus the time premium. B.  time premium plus the intrinsic value. C.  implied standard deviation plus the intrinsic value. D.  summation of the intrinsic value, the time premium, and the implied standard deviation. E.  summation of delta, theta, vega, and rho. Refer to section 25.3