Question 1

Which strategy is a bet that the actual volatility of an asset is low relative to the marketʹs assessment?

Accepted Answer

A)  Long Call 
B)  Long Put 
C)  Purchased straddle 
D)  Written straddle 
A)  Long Call 
B)  Long Put 
C)  Purchased straddle 
D)  Written straddle

Question 2

Using option strategy concepts, what is the value of an insured home, if the value of the uninsured home is $220,000, the house was purchased for $180,000 and the house has a casualty policy costing $500 with a $2,000 deductible? Ignore interest costs.

Accepted Answer

A)  $180,000 
B)  $217,500 
C)  $220,000 
D)  $222,500 
A)  $180,000 
B)  $217,500 
C)  $220,000 
D)  $222,500

Question 3

A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, what is the estimated price of a call option with an exercise price of $830?

Accepted Answer

A)  $42.47 
B)  $45.26 
C)  $47.67 
D)  $49.55 
A)  $42.47 
B)  $45.26 
C)  $47.67 
D)  $49.55

Question 4

What is the maximum loss that an investor can obtain over 6 months from a strategy employing a long 830 call and a short 850 call? Interest rates are 0.5% per month.

Accepted Answer

A)  $6.80 
B)  $7.68 
C)  $9.24 
D)  $12.32 
A)  $6.80 
B)  $7.68 
C)  $9.24 
D)  $12.32

Question 5

Which of the following strategies represents a purchased put and a written call for which the premiums are equal?

Accepted Answer

A)  Butterfly spread 
B)  Strangle 
C)  Ratio call write 
D)  Bull spread 
A)  Butterfly spread 
B)  Strangle 
C)  Ratio call write 
D)  Bull spread

Which strategy is a bet that the actual volatility of an asset is low relative to the marketʹs assessment?

Using option strategy concepts, what is the value of an insured home, if the value of the uninsured home is $220,000, the house was purchased for $180,000 and the house has a casualty policy costing $500 with a $2,000 deductible? Ignore interest costs.

A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, what is the estimated price of a call option with an exercise price of $830?

What is the maximum loss that an investor can obtain over 6 months from a strategy employing a long 830 call and a short 850 call? Interest rates are 0.5% per month.

Which of the following strategies represents a purchased put and a written call for which the premiums are equal?

Introduction to Derivatives

An Introduction to Forwards and Options

Introduction to Risk Management

Financial Forwards and Futures

The Wide World of Futures Contracts

Interest Rates Forwards and Futures

Swaps

Parity and Other Option Relationships

Binomial Option Pricing

The Black-Scholes Formula

Financial Engineering and Security Design

Corporate Applications

Real Options

Filters

Exam 3: Insurance, Collars, and Other Strategies

Which strategy is a bet that the actual volatility of an asset is low relative to the marketʹs assessment?

Using option strategy concepts, what is the value of an insured home, if the value of the uninsured home is $220,000, the house was purchased for $180,000 and the house has a casualty policy costing $500 with a $2,000 deductible? Ignore interest costs.

A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, what is the estimated price of a call option with an exercise price of $830?

What is the maximum loss that an investor can obtain over 6 months from a strategy employing a long 830 call and a short 850 call? Interest rates are 0.5% per month.

Which of the following strategies represents a purchased put and a written call for which the premiums are equal?

Introduction to Derivatives

An Introduction to Forwards and Options

Introduction to Risk Management

Financial Forwards and Futures

The Wide World of Futures Contracts

Interest Rates Forwards and Futures

Swaps

Parity and Other Option Relationships

Binomial Option Pricing

The Black-Scholes Formula

Financial Engineering and Security Design

Corporate Applications

Real Options

Filters