Question 1

The price that the writer of a put option receives for the underlying asset if the option is exercised is called the

Accepted Answer

A)  strike price. 
B)  exercise price. 
C)  execution price. 
D)  strike price or exercise price. 
E)  None of the options are correct. 
A)  strike price. 
B)  exercise price. 
C)  execution price. 
D)  strike price or exercise price. 
E)  None of the options are correct.

Question 2

The price that the writer of a put option receives to sell the option is called the

Accepted Answer

A)  premium. 
B)  exercise price. 
C)  execution price. 
D)  acquisition price. 
E)  strike price. 
A)  premium. 
B)  exercise price. 
C)  execution price. 
D)  acquisition price. 
E)  strike price.

Question 3

A stock is currently selling for $32. The price of a $30 strike call with a 6 month expiration is $3.10. If the interest rate is 3%, what is the price of the put option assuming no dividend is paid?

Accepted Answer

A)  $0.66 
B)  $1.15 
C)  $1.36 
D)  $1.56 
E)  None of the options. 
A)  $0.66 
B)  $1.15 
C)  $1.36 
D)  $1.56 
E)  None of the options.

Question 4

A protective put strategy is

Accepted Answer

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. 
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.

Question 5

You purchase one LLY 75 call option for a premium of $3. Ignoring transaction costs, the break-even price of the position is

Accepted Answer

A)  $75. 
B)  $72. 
C)  $3. 
D)  $78. 
A)  $75. 
B)  $72. 
C)  $3. 
D)  $78.

Question 6

Barrier options have payoffs that

Accepted Answer

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. 
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.

Question 7

You buy one Loews 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

Accepted Answer

A)  a short straddle. 
B)  a long straddle. 
C)  a horizontal straddle. 
D)  a covered call. 
E)  None of the options are correct. 
A)  a short straddle. 
B)  a long straddle. 
C)  a horizontal straddle. 
D)  a covered call. 
E)  None of the options are correct.

Question 8

The current market price of a share of Coca Cola stock is $50. If a put option on this stock has a strike price of $45, the put

Accepted Answer

A)  is out of the money. 
B)  is in the money. 
C)  sells for a lower price than if the market price of Coca Cola stock is $40. 
D)  is out of the money and sells for a lower price than if the market price of Coca Cola stock is $40. 
E)  is in the money and sells for a lower price than if the market price of Coca Cola stock is $40. 
A)  is out of the money. 
B)  is in the money. 
C)  sells for a lower price than if the market price of Coca Cola stock is $40. 
D)  is out of the money and sells for a lower price than if the market price of Coca Cola stock is $40. 
E)  is in the money and sells for a lower price than if the market price of Coca Cola stock is $40.

Question 9

Financial engineering

Accepted Answer

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. 
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.

Question 10

A call option on a stock is said to be out of the money if

Accepted Answer

A)  the exercise price is higher than the stock price. 
B)  the exercise price is less than the stock price. 
C)  the exercise price is equal to the stock price. 
D)  the price of the put is higher than the price of the call. 
E)  the price of the call is higher than the price of the put. 
A)  the exercise price is higher than the stock price. 
B)  the exercise price is less than the stock price. 
C)  the exercise price is equal to the stock price. 
D)  the price of the put is higher than the price of the call. 
E)  the price of the call is higher than the price of the put.

Question 11

A put option on a stock is said to be at the money if

Accepted Answer

A)  the exercise price is higher than the stock price. 
B)  the exercise price is less than the stock price. 
C)  the exercise price is equal to the stock price. 
D)  the price of the put is higher than the price of the call. 
E)  the price of the call is higher than the price of the put. 
A)  the exercise price is higher than the stock price. 
B)  the exercise price is less than the stock price. 
C)  the exercise price is equal to the stock price. 
D)  the price of the put is higher than the price of the call. 
E)  the price of the call is higher than the price of the put.

Question 12

The maximum loss a buyer of a stock call option can suffer is equal to

Accepted Answer

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. 
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.

Question 13

The price that the buyer of a call option pays for the underlying asset if she executes her option is called the

Accepted Answer

A)  strike price. 
B)  exercise price. 
C)  execution price. 
D)  strike price or execution price. 
E)  strike price or exercise price. 
A)  strike price. 
B)  exercise price. 
C)  execution price. 
D)  strike price or execution price. 
E)  strike price or exercise price.

Question 14

A stock is currently selling for $47. The price of a $50 strike call with a 6 month expiration is selling for $2.20. If the interest rate is 4%, what is the price of the put option?

Accepted Answer

A)  $5.41 
B)  $4.23 
C)  $3.36 
D)  $2.26 
E)  None of the options. 
A)  $5.41 
B)  $4.23 
C)  $3.36 
D)  $2.26 
E)  None of the options.

Question 15

You write one Coca Cola February 50 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?

Accepted Answer

A)  $50 
B)  $55 
C)  $45 
D)  $40 
A)  $50 
B)  $55 
C)  $45 
D)  $40

Question 16

The Option Clearing Corporation is owned by

Accepted Answer

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. 
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.

Question 17

You buy one Loews 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

Accepted Answer

A)  $52. 
B)  $60. 
C)  $68. 
D)  either $52 or $68. 
E)  None of the options are correct. 
A)  $52. 
B)  $60. 
C)  $68. 
D)  either $52 or $68. 
E)  None of the options are correct.

Question 18

The maximum loss a buyer of a stock put option can suffer is equal to

Accepted Answer

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. 
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.

Question 19

The value of a stock put option is positively related to

Accepted Answer

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. 
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.

Question 20

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

Accepted Answer

A)  is out of the money. 
B)  is at 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. 
A)  is out of the money. 
B)  is at 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.

Exam 20: Options Markets: Introduction

The price that the writer of a put option receives for the underlying asset if the option is exercised is called the

The price that the writer of a put option receives to sell the option is called the

A stock is currently selling for $32. The price of a $30 strike call with a 6 month expiration is $3.10. If the interest rate is 3%, what is the price of the put option assuming no dividend is paid?

A protective put strategy is

You purchase one LLY 75 call option for a premium of $3. Ignoring transaction costs, the break-even price of the position is

Barrier options have payoffs that

You buy one Loews 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

The current market price of a share of Coca Cola stock is $50. If a put option on this stock has a strike price of $45, the put

Financial engineering

A call option on a stock is said to be out of the money if

A put option on a stock is said to be at the money if

The maximum loss a buyer of a stock call option can suffer is equal to

The price that the buyer of a call option pays for the underlying asset if she executes her option is called the

A stock is currently selling for $47. The price of a $50 strike call with a 6 month expiration is selling for $2.20. If the interest rate is 4%, what is the price of the put option?

You write one Coca Cola February 50 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?

The Option Clearing Corporation is owned by

You buy one Loews 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

The maximum loss a buyer of a stock put option can suffer is equal to

The value of a stock put option is positively related to

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

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