Question 1

An American call option can be exercised

Accepted Answer

A)  any time on or before the expiration date. 
B)  only on the expiration date. 
C)  any time in the indefinite future. 
D)  only after dividends are paid. 
E)  None of the options are correct. 
A)  any time on or before the expiration date. 
B)  only on the expiration date. 
C)  any time in the indefinite future. 
D)  only after dividends are paid. 
E)  None of the options are correct.

Question 2

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

Accepted Answer

A)  $200. 
B)  $300. 
C)  zero. 
D)  $500. 
A)  $200. 
B)  $300. 
C)  zero. 
D)  $500.

Question 3

You write one LLY February 70 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?

Accepted Answer

A)  $65 
B)  $75 
C)  $5 
D)  $70 
A)  $65 
B)  $75 
C)  $5 
D)  $70

Question 4

The price that the buyer of a put option receives 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 5

Trading in "exotic options" takes place primarily

Accepted Answer

A)  on the New York Stock Exchange. 
B)  in the over-the-counter market. 
C)  on the American Stock Exchange. 
D)  in the primary marketplace. 
E)  None of the options. 
A)  on the New York Stock Exchange. 
B)  in the over-the-counter market. 
C)  on the American Stock Exchange. 
D)  in the primary marketplace. 
E)  None of the options.

Question 6

Suppose the price of a share of ONB stock is $200. An April call option on ONB 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

Accepted Answer

A)  increases to $204. 
B)  decreases to $190. 
C)  increases to $206. 
D)  decreases to $196. 
E)  None of the options are correct. 
A)  increases to $204. 
B)  decreases to $190. 
C)  increases to $206. 
D)  decreases to $196. 
E)  None of the options are correct.

Question 7

An American put option allows the holder to

Accepted Answer

A)  buy the underlying asset at the striking price on or before the expiration date. 
B)  sell the underlying asset at the striking price on or before the expiration date. 
C)  potentially benefit from a stock price increase. 
D)  sell the underlying asset at the striking price on or before the expiration date and potentially benefit from a stock price increase. 
E)  buy the underlying asset at the striking price on or before the expiration date and potentially benefit from a stock price increase. 
A)  buy the underlying asset at the striking price on or before the expiration date. 
B)  sell the underlying asset at the striking price on or before the expiration date. 
C)  potentially benefit from a stock price increase. 
D)  sell the underlying asset at the striking price on or before the expiration date and potentially benefit from a stock price increase. 
E)  buy the underlying asset at the striking price on or before the expiration date and potentially benefit from a stock price increase.

Question 8

A call option on a stock is said to be in 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 9

Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,700, and the index is now at 1,760. What will happen when you exercise the option?

Accepted Answer

A)  You will have to pay $6,000. 
B)  You will receive $6,000. 
C)  You will receive $1,700. 
D)  You will receive $1,760. 
E)  You will have to pay $7,000. 
A)  You will have to pay $6,000. 
B)  You will receive $6,000. 
C)  You will receive $1,700. 
D)  You will receive $1,760. 
E)  You will have to pay $7,000.

Question 10

To the option holder, put options are worth ______ when the exercise price is higher; call options are worth ______ when the exercise price is higher.

Accepted Answer

A)  more; more 
B)  more; less 
C)  less; more 
D)  less; less 
E)  It doesn't matter-they are too risky to be included in a reasonable person's portfolio. 
A)  more; more 
B)  more; less 
C)  less; more 
D)  less; less 
E)  It doesn't matter-they are too risky to be included in a reasonable person's portfolio.

Question 11

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?

Accepted Answer

A)  $101 
B)  $102 
C)  $103 
D)  $104 
E)  None of the options are correct. 
A)  $101 
B)  $102 
C)  $103 
D)  $104 
E)  None of the options are correct.

Question 12

The potential loss for a writer of a naked call option on a stock is

Accepted Answer

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. 
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.

Question 13

An American call option allows the buyer to

Accepted Answer

A)  sell the underlying asset at the exercise price on or before the expiration date. 
B)  buy the underlying asset at the exercise price on or before the expiration date. 
C)  sell the option in the open market prior to expiration. 
D)  sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. 
E)  buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. 
A)  sell the underlying asset at the exercise price on or before the expiration date. 
B)  buy the underlying asset at the exercise price on or before the expiration date. 
C)  sell the option in the open market prior to expiration. 
D)  sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. 
E)  buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

Question 14

Buyers of call options __________ required to post margin deposits, and sellers of put options __________ required to post margin deposits.

Accepted Answer

A)  are; are not 
B)  are; are 
C)  are not; are 
D)  are not; are not 
E)  are always; are sometimes 
A)  are; are not 
B)  are; are 
C)  are not; are 
D)  are not; are not 
E)  are always; are sometimes

Question 15

Call options on ONB-listed stock options are

Accepted Answer

A)  issued by ONB Corporation. 
B)  created by investors. 
C)  traded on various exchanges. 
D)  issued byONB Corporation and traded on various exchanges. 
E)  created by investors and traded on various exchanges. 
A)  issued by ONB Corporation. 
B)  created by investors. 
C)  traded on various exchanges. 
D)  issued byONB Corporation and traded on various exchanges. 
E)  created by investors and traded on various exchanges.

Question 16

The value of a stock put option is positively related to the following factors except

Accepted Answer

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. 
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.

Question 17

Lookback options have payoffs that

Accepted Answer

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. 
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.

Question 18

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

Accepted Answer

A)  $500. 
B)  $300. 
C)  zero. 
D)  $200. 
A)  $500. 
B)  $300. 
C)  zero. 
D)  $200.

Question 19

An option with an exercise price equal to the underlying asset's price is

Accepted Answer

A)  worthless. 
B)  in the money. 
C)  at the money. 
D)  out of the money. 
E)  theoretically impossible. 
A)  worthless. 
B)  in the money. 
C)  at the money. 
D)  out of the money. 
E)  theoretically impossible.

Question 20

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?

Accepted Answer

A)  $4,800 
B)  $200 
C)  $5,000 
D)  $5,200 
E)  None of the options are correct. 
A)  $4,800 
B)  $200 
C)  $5,000 
D)  $5,200 
E)  None of the options are correct.

Exam 20: Options Markets: Introduction

An American call option can be exercised

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

You write one LLY February 70 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?

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

Trading in "exotic options" takes place primarily

Suppose the price of a share of ONB stock is $200. An April call option on ONB 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

An American put option allows the holder to

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

Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,700, and the index is now at 1,760. What will happen when you exercise the option?

To the option holder, put options are worth ______ when the exercise price is higher; call options are worth ______ when the exercise price is higher.

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?

The potential loss for a writer of a naked call option on a stock is

An American call option allows the buyer to

Buyers of call options __________ required to post margin deposits, and sellers of put options __________ required to post margin deposits.

Call options on ONB-listed stock options are

The value of a stock put option is positively related to the following factors except

Lookback options have payoffs that

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

An option with an exercise price equal to the underlying asset's price is

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?

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

To the option holder, put options are worth when the exercise price is higher; call options are worth when the exercise price is higher.

Buyers of call options required to post margin deposits, and sellers of put options required to post margin deposits.