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Investments & Securities
Q:
Delta is defined as
A. the change in the value of an option for a dollar change in the price of the underlying asset.
B. the change in the value of the underlying asset for a dollar change in the call price.
C. the percentage change in the value of an option for a 1% change in the value of the underlying asset.
D. the change in the volatility of the underlying stock price.
E. None of the options are correct.
Q:
Which of the inputs in the Black-Scholes option pricing model are directly observable?
A. The price of the underlying security
B. The risk-free rate of interest
C. The time to expiration
D. The variance of returns of the underlying asset return
E. The price of the underlying security, risk-free rate of interest, and time to expiration
Q:
All the inputs in the Black-Scholes option pricing model are directly observable except
A. the price of the underlying security.
B. the risk-free rate of interest.
C. the time to expiration.
D. the variance of returns of the underlying asset return.
Q:
The price of a stock call option is __________ correlated with the stock price and __________ correlated with the strike price.
A. positively; positively
B. negatively; positively
C. negatively; negatively
D. positively; negatively
E. not; not
Q:
The price of a stock put option is __________ correlated with the stock price and __________ correlated with the strike price.
A. positively; positively
B. negatively; positively
C. negatively; negatively
D. positively; negatively
E. not; not
Q:
Other things equal, the price of a stock put option is negatively correlated with which of the following factors?
A. The stock price
B. The time to expiration
C. The stock volatility
D. The exercise price
E. The time to expiration, stock volatility, and exercise price
Q:
Other things equal, the price of a stock put option is positively correlated with which of the following factors?
A. The stock price
B. The time to expiration
C. The stock volatility
D. The exercise price
E. The time to expiration, stock volatility, and exercise price
Q:
Other things equal, the price of a stock put option is positively correlated with the following factors except
A. the stock price.
B. the time to expiration.
C. the stock volatility.
D. the exercise price.
Q:
Other things equal, the price of a stock call option is negatively correlated with which of the following factors?
A. The stock price
B. The time to expiration
C. The stock volatility
D. The exercise price
E. The stock price, time to expiration, and stock volatility
Q:
Other things equal, the price of a stock call option is positively correlated with which of the following factors?
A. The stock price
B. The time to expiration
C. The stock volatility
D. The exercise price
E. The stock price, time to expiration, and stock volatility
Q:
Other things equal, the price of a stock call option is positively correlated with the following factors except
A. the stock price.
B. the time to expiration.
C. the stock volatility.
D. the exercise price.
Q:
If the stock price decreases, the price of a put option on that stock __________, and that of a call option __________.
A. decreases; increases
B. decreases; decreases
C. increases; decreases
D. increases; increases
E. does not change; does not change
Q:
If the stock price increases, the price of a put option on that stock __________, and that of a call option __________.
A. decreases; increases
B. decreases; decreases
C. increases; decreases
D. increases; increases
E. does not change; does not change
Q:
Prior to expiration,
A. the intrinsic value of a put option is greater than its actual value.
B. the intrinsic value of a put option is always positive.
C. the actual value of a put option is greater than the intrinsic value.
D. the intrinsic value of a put option is always greater than its time value.
Q:
Prior to expiration,
A. the intrinsic value of a call option is greater than its actual value.
B. the intrinsic value of a call option is always positive.
C. the actual value of a call option is greater than the intrinsic value.
D. the intrinsic value of a call option is always greater than its time value.
Q:
A put option has an intrinsic value of zero if the option is
A. at the money.
B. out of the money.
C. in the money.
D. at the money and in the money.
E. at the money or out of the money.
Q:
A call option has an intrinsic value of zero if the option is
A. at the money.
B. out of the money.
C. in the money.
D. at the money and in the money.
E. at the money or out of the money.
Q:
At expiration, the time value of an at-the-money put option is always
A. equal to zero.
B. equal to the stock price minus the exercise price.
C. negative.
D. positive.
Q:
At expiration, the time value of an at-the-money call option is always
A. positive.
B. equal to zero.
C. negative.
D. equal to the stock price minus the exercise price.
Q:
At expiration, the time value of an in-the-money put option is always
A. equal to zero.
B. negative.
C. positive.
D. equal to the stock price minus the exercise price.
E. None of the options are correct.
Q:
At expiration, the time value of an in-the-money call option is always
A. equal to zero.
B. positive.
C. negative.
D. equal to the stock price minus the exercise price.
E. None of the options are correct.
Q:
Before expiration, the time value of an at-the-money put option is always
A. equal to zero.
B. equal to the stock price minus the exercise price.
C. negative.
D. positive.
E. None of the options are correct.
Q:
Before expiration, the time value of an at-the-money call option is usually
A. positive.
B. equal to zero.
C. negative.
D. equal to the stock price minus the exercise price.
E. None of the options are correct.
Q:
Before expiration, the time value of an in-the-money put option is always
A. equal to zero.
B. negative.
C. positive.
D. equal to the stock price minus the exercise price.
E. None of the options are correct.
Q:
Before expiration, the time value of an in-the-money call option is always
A. equal to zero.
B. positive.
C. negative.
D. equal to the stock price minus the exercise price.
E. None of the options are correct.
Q:
HighFlyer Stock currently sells for $48. A one-year call option with strike price of $55 sells for $9, and the risk-free interest rate is 6%. What is the price of a one-year put with strike price of $55?
A. $9.00
B. $12.89
C. $16.00
D. $18.72
E. $15.60
Q:
Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk-free interest rate is 5.5%. What is the price of a one-year put with strike price of $58?
A. $10.00
B. $12.12
C. $16.00
D. $11.98
E. $14.13
Q:
A collar with a net outlay of approximately zero is an options strategy that
A. combines a put and a call to lock in a price range for a security.
B. uses the gains from sale of a call to purchase a put.
C. uses the gains from sale of a put to purchase a call.
D. combines a put and a call to lock in a price range for a security and uses the gains from sale of a call to purchase a put.
E. combines a put and a call to lock in a price range for a security and uses the gains from sale of a put to purchase a call.
Q:
Financial engineering
A. is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security.
B. primarily takes place for the institutional investor.
C. primarily takes places for the individual investor.
D. is the custom designing of securities or portfolios with desired patterns of exposure to the price of the . underlying security and primarily takes place for the institutional investor.
E.is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security and primarily takes places for the individual investor.
Q:
Some more "traditional" assets have option-like features; some of these instruments include
A. callable bonds.
B. convertible bonds.
C. warrants.
D. callable bonds and convertible bonds.
E. All of the options are correct.
Q:
The put-call parity theorem
A. represents the proper relationship between put and call prices.
B. allows for arbitrage opportunities if violated.
C. may be violated by small amounts, but not enough to earn arbitrage profits, once transaction costs are considered.
D. All of the options are correct.
E. None of the options are correct.
Q:
You buy one Home Depot June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.
At expiration, you break even if the stock price is equal to
A. $52.
B. $60.
C. $68.
D. either $52 or $68.
E. None of the options are correct.
Q:
You buy one Home Depot June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.
Your maximum loss from this position could be
A. $500.
B. $300.
C. $800.
D. $200.
E. None of the options are correct.
Q:
You buy one Home Depot June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.
Your strategy is called
A. a short straddle.
B. a long straddle.
C. a horizontal straddle.
D. a covered call.
E. None of the options are correct.
Q:
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. What is the lowest stock price at which you can break even?
A. $101
B. $102
C. $103
D. $104
E. None of the options are correct.
Q:
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. The maximum loss you could suffer from your strategy is
A. $200.
B. $300.
C. zero.
D. $500.
Q:
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. If, at expiration, the price of a share of WFM stock is $103, your profit would be
A. $500.
B. $300.
C. zero.
D. $200.
Q:
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. The maximum potential profit of your strategy is ________, if both options are exercised.
A. $600
B. $500
C. $200
D. $300
E. $100
Q:
The following price quotations on WFM were taken from the Wall Street Journal. The premium on one WFM February 85 call contract is
A. $8.875.
B. $887.50.
C. $412.50.
D. $158.00.
Q:
The following price quotations on WFM were taken from the Wall Street Journal. The premium on one WFM February 90 call contract is
A. $4.1250.
B. $418.00.
C. $412.50.
D. $158.00.
Q:
The following price quotations were taken from the Wall Street Journal. The premium on one February 90 call contract is
A. $3.1250.
B. $318.00.
C. $312.50.
D. $58.00.
Q:
You purchase one IBM March 200 put contract for a put premium of $6. What is the maximum profit that you could gain from this strategy?
A. $20,000
B. $20,600
C. $19,400
D. $19,000
Q:
You purchase one June 70 put contract for a put premium of $4. What is the maximum profit that you could gain from this strategy?
A. $7,000
B. $400
C. $7,400
D. $6,600
E. None of the options are correct.
Q:
You purchase one September 50 put contract for a put premium of $2. What is the maximum profit that you could gain from this strategy?
A. $4,800
B. $200
C. $5,000
D. $5,200
E. None of the options are correct.
Q:
The value of a stock put option is positively related to
A. the time to expiration.
B. the striking price.
C. the stock price.
D. the time to expiration and the striking price.
E. All of the options are correct.
Q:
The value of a stock put option is positively related to the following factors except
A. the time to expiration.
B. the striking price.
C. the stock price.
D. All of the options are correct.
E. None of the options are correct.
Q:
All of the following factors affect the price of a stock option except
A. the risk-free rate.
B. the riskiness of the stock.
C. the time to expiration.
D. the expected rate of return on the stock.
E. None of the options are correct.
Q:
Which of the following factors affect the price of a stock option?
A. The risk-free rate
B. The riskiness of the stock
C. The time to expiration
D. The expected rate of return on the stock
E. The risk-free rate, riskiness of the stock, and time to expiration
Q:
Before expiration, the time value of a call option is equal to
A. zero.
B. the actual call price minus the intrinsic value of the call.
C. the intrinsic value of the call.
D. the actual call price plus the intrinsic value of the call.
Q:
You purchased one AT&T March 50 put and sold one AT&T April 50 put. Your strategy is known as
A. a vertical spread.
B. a straddle.
C. a time spread.
D. a collar.
Q:
You purchased one AT&T March 50 call and sold one AT&T March 55 call. Your strategy is known as
A. a long straddle.
B. a horizontal spread.
C. a money spread.
D. a short straddle.
E. None of the options are correct.
Q:
Suppose the price of a share of IBM stock is $200. An April call option on IBM stock has a premium of $5 and an exercise price of $200. Ignoring commissions, the holder of the call option will earn a profit if the price of the share
A. increases to $204.
B. decreases to $190.
C. increases to $206.
D. decreases to $196.
E. None of the options are correct.
Q:
Suppose the price of a share of Google stock is $500. An April call option on Google stock has a premium of $5 and an exercise price of $500. Ignoring commissions, the holder of the call option will earn a profit if the price of the share
A. increases to $504.
B. decreases to $490.
C. increases to $506.
D. decreases to $496.
E. None of the options are correct.
Q:
A protective put strategy is
A. a long put plus a long position in the underlying asset.
B. a long put plus a long call on the same underlying asset.
C. a long call plus a short put on the same underlying asset.
D. a long put plus a short call on the same underlying asset.
E. None of the options are correct.
Q:
According to the put-call parity theorem, the value of a European put option on a nondividend paying stock is equal to
A. the call value plus the present value of the exercise price plus the stock price.
B. the call value plus the present value of the exercise price minus the stock price.
C. the present value of the stock price minus the exercise price minus the call price.
D. the present value of the stock price plus the exercise price minus the call price.
E. None of the options are correct.
Q:
A covered call position is
A. the simultaneous purchase of the call and the underlying asset.
B. the purchase of a share of stock with a simultaneous sale of a put on that stock.
C. the short sale of a share of stock with a simultaneous sale of a call on that stock.
D. the purchase of a share of stock with a simultaneous sale of a call on that stock.
E. the simultaneous purchase of a call and sale of a put on the same stock.
Q:
The Option Clearing Corporation is owned by
A. the Federal Reserve System.
B. the exchanges on which stock options are traded.
C. the major U.S. banks.
D. the Federal Deposit Insurance Corporation.
Q:
Buyers of put options anticipate the value of the underlying asset will __________, and sellers of call options anticipate the value of the underlying asset will ________.
A. increase; increase
B. decrease; increase
C. increase; decrease
D. decrease; decrease
E. Cannot tell without further information
Q:
Buyers of call options __________ required to post margin deposits, and sellers of put options __________
required to post margin deposits.
A. are; are not
B. are; are
C. are not; are
D. are not; are not
E. are always; are sometimes
Q:
Call options on IBM-listed stock options are
A. issued by IBM Corporation.
B. created by investors.
C. traded on various exchanges.
D. issued by IBM Corporation and traded on various exchanges.
E. created by investors and traded on various exchanges.
Q:
You purchase one IBM 200 call option for a premium of $6. Ignoring transaction costs, the break-even price of the position is
A. $194.
B. $228.
C. $206.
D. $211.
Q:
You write one AT&T February 50 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?
A. $50
B. $55
C. $45
D. $40
Q:
You purchase one JNJ 75 call option for a premium of $3. Ignoring transaction costs, the break-even price of the position is
A. $75.
B. $72.
C. $3.
D. $78.
Q:
You write one JNJ February 70 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?
A. $65
B. $75
C. $5
D. $70
Q:
The potential loss for a writer of a naked call option on a stock is
A. limited.
B. unlimited.
C. increasing when the stock price is decreasing.
D. equal to the call premium.
E. None of the options are correct.
Q:
The lower bound on the market price of a convertible bond is
A. its straight-bond value.
B. its crooked-bond value.
C. its conversion value.
D. its straight-bond value and its conversion value.
E. None of the options are correct.
Q:
The maximum loss a buyer of a stock put option can suffer is equal to
A. the striking price minus the stock price.
B. the stock price minus the value of the call.
C. the put premium.
D. the stock price.
E. None of the options are correct.
Q:
The maximum loss a buyer of a stock call option can suffer is equal to
A. the striking price minus the stock price.
B. the stock price minus the value of the call.
C. the call premium.
D. the stock price.
E. None of the options are correct.
Q:
Binary options
A. are based on two possible outcomes yes or no.
B. may make a payoff of a fixed amount if a specified event happens.
C. may make a payoff of a fixed amount if a specified event does not happen.
D. may make a payoff of a fixed amount if a specified event happens and are based on two possible outcomes yes or no.
E. All of the options are correct.
Q:
Currency-translated options have
A. only asset prices denoted in a foreign currency.
B. only exercise prices denoted in a foreign currency.
C. payoffs that only depend on the maximum price of the underlying asset during the life of the option.
D. either asset or exercise prices denoted in a foreign currency.
Q:
Barrier options have payoffs that
A. have payoffs that only depend on the minimum price of the underlying asset during the life of the option.
B. depend both on the asset's price at expiration and on whether the underlying asset's price has crossed through some barrier.
C. are known in advance.
D. have payoffs that only depend on the maximum price of the underlying asset during the life of the option. Barrier options have payoffs that depend both on the asset's price at expiration and on whether the underlying asset's price has crossed through some barrier.
Q:
Lookback options have payoffs that
A. depend in part on the minimum or maximum price of the underlying asset during the life of the option.
B. only depend on the minimum price of the underlying asset during the life of the option.
C. only depend on the maximum price of the underlying asset during the life of the option.
D. are known in advance.
Q:
The current market price of a share of CAT stock is $76. If a put option on this stock has a strike price of $80, the put
A. is out of the money.
B. is in the money.
C. can be exercised profitably.
D. is out of the money and can be exercised profitably.
E. is in the money and can be exercised profitably.
Q:
The current market price of a share of Disney stock is $60. If a put option on this stock has a strike price of $65, the put
A. is out of the money.
B. is in the money.
C. can be exercised profitably.
D. is out of the money and can be exercised profitably.
E. is in the money and can be exercised profitably.
Q:
The current market price of a share of CSCO stock is $22. If a put option on this stock has a strike price of $20, the put
A. is out of the money.
B. is in the money.
C. sells for a higher price than if the strike price of the put option was $25.
D. is out of the money and sells for a higher price than if the strike price of the put option was $25.
E. is in the money and sells for a higher price than if the strike price of the put option was $25.
Q:
The current market price of a share of Boeing stock is $75. If a put option on this stock has a strike price of $70, the put
A. is out of the money.
B. is in the money.
C. sells for a higher price than if the market price of Boeing stock is $70.
D. is out of the money and sells for a higher price than if the market price of Boeing stock is $70.
E. is in the money and sells for a higher price than if the market price of Boeing stock is $70.
Q:
The current market price of a share of AT&T stock is $50. If a put option on this stock has a strike price of $45, the put
A. is out of the money.
B. is in the money.
C. sells for a lower price than if the market price of AT&T stock is $40.
D. is out of the money and sells for a lower price than if the market price of AT&T stock is $40.
E. is in the money and sells for a lower price than if the market price of AT&T stock is $40.
Q:
The current market price of a share of TSCO stock is $75. If a put option on this stock has a strike price of $79, the put
A. is out of the money.
B. is in the money.
C. can be exercised profitably.
D. is out of the money and can be exercised profitably.
E. is in the money and can be exercised profitably.
Q:
The current market price of a share of MSI stock is $15. If a put option on this stock has a strike price of $20, the put
A. is out of the money.
B. is in the money.
C. can be exercised profitably.
D. is out of the money and can be exercised profitably.
E. is in the money and can be exercised profitably.
Q:
The current market price of a share of a stock is $20. If a put option on this stock has a strike price of $18, the put
A. is out of the money.
B. is in the money.
C. sells for a higher price than if the strike price of the put option was $23.
D. is out of the money and sells for a higher price than if the strike price of the put option was $23.
E. is in the money and sells for a higher price than if the strike price of the put option was $23.