Question 1

The ____ is the most important exchange for trading options.

Accepted Answer

A) New York Stock Exchange (NYS
E)  
B) Chicago Board Options Exchange (CBO
E)  
C) Boston Options Exchange 
D) Nasdaq 
A) New York Stock Exchange (NYS
E)  
B) Chicago Board Options Exchange (CBO
E)  
C) Boston Options Exchange 
D) Nasdaq B

Question 2

A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. What is the stock price at which the speculator would break even? ​

Accepted Answer

A) $50 
B) $58 
C) $52 
D) $53 
E) $49 
A) $50 
B) $58 
C) $52 
D) $53 
E) $49 D

Question 3

Options on small stocks normally have higher premiums than options on large stocks because small stocks typically are more volatile.

Accepted Answer

A) True 
 B)False  True

Question 4

The premium on an existing call option should ____ when there is an increase in the volatility of the underlying stock .

Accepted Answer

A) be negative 
B) decline 
C) increase 
D) be unaffected 
E) be negative AND decline 
A) be negative 
B) decline 
C) increase 
D) be unaffected 
E) be negative AND decline

Question 5

Brad expects interest rates to increase and purchases a put option on Treasury bond futures with an exercise price of 97-00. The premium paid for the put option is 3-00. Just prior to the expiration date, the price of the Treasury bond futures contract is valued at 89-00. Brad exercises the option and closes out the position by purchasing an identical futures contract. Brad's net gain from this speculative strategy is $____, and his return on his investment is about _______ percent.

Accepted Answer

A) 5,300; 366 
B) 11,000; 27 
C) - 5,000; −167 
D) 5,000; 167 
E) None of these are correct. 
A) 5,300; 366 
B) 11,000; 27 
C) - 5,000; −167 
D) 5,000; 167 
E) None of these are correct.

Question 6

A speculator purchased a call option with an exercise price of $31 for a premium of $4. The option was exercised a few days later when the stock price was $34. What was the return to the speculator?

Accepted Answer

A) 25 percent 
B) - 25 percent 
C) - 3.2 percent 
D) - 2.9 percent 
A) 25 percent 
B) - 25 percent 
C) - 3.2 percent 
D) - 2.9 percent

Question 7

Which of the following is NOT true with respect to market makers?

Accepted Answer

A) They benefit from the spread. 
B) They may earn profits when they take positions in options. 
C) They are not subject to a risk of loss on their positions in options. 
D) All of these are true with respect to market makers. 
A) They benefit from the spread. 
B) They may earn profits when they take positions in options. 
C) They are not subject to a risk of loss on their positions in options. 
D) All of these are true with respect to market makers.

Question 8

Corporations involved in international business transactions can ____ to hedge future ____.

Accepted Answer

A) sell currency call options; payables 
B) purchase currency put options; receivables 
C) purchase currency call options, receivables 
D) purchase currency put options, payables 
E) sell currency call options; payables AND purchase currency put options; receivables 
A) sell currency call options; payables 
B) purchase currency put options; receivables 
C) purchase currency call options, receivables 
D) purchase currency put options, payables 
E) sell currency call options; payables AND purchase currency put options; receivables

Question 9

On an options exchange, most option trades are executed

Accepted Answer

A) electronically. 
B) on the trading floor. 
C) by personal phone call. 
D) None of the above. 
A) electronically. 
B) on the trading floor. 
C) by personal phone call. 
D) None of the above.

Question 10

Which of the following is NOT true regarding options and options on futures contracts?

Accepted Answer

A) The purchaser of both an option and an option on futures must pay a premium. 
B) Options are available on stock indexes, but not on stock index futures. 
C) The fulfillment of options on futures contracts is regulated by exchanges, while the fulfillment of options is not. 
D) Options are available on stock indexes, but not on stock index futures AND t he fulfillment of options on futures contracts is regulated by exchanges, while the fulfillment of options is not. 
A) The purchaser of both an option and an option on futures must pay a premium. 
B) Options are available on stock indexes, but not on stock index futures. 
C) The fulfillment of options on futures contracts is regulated by exchanges, while the fulfillment of options is not. 
D) Options are available on stock indexes, but not on stock index futures AND t he fulfillment of options on futures contracts is regulated by exchanges, while the fulfillment of options is not.

Question 11

Options on stock indexes representing non-U.S. stocks are ____; options exchanges have been established ____.

Accepted Answer

A) available; in numerous non-U.S. countries 
B) not available; in numerous non-U.S. countries 
C) available; only in the United States 
D) not available; only in the United States 
A) available; in numerous non-U.S. countries 
B) not available; in numerous non-U.S. countries 
C) available; only in the United States 
D) not available; only in the United States

Question 12

A put option is "out of the money" when the

Accepted Answer

A) market price of the security exceeds the exercise price. 
B) market price of the security equals the exercise price. 
C) market price of the security is less than the exercise price. 
D) premium on the option is less than the exercise price. 
A) market price of the security exceeds the exercise price. 
B) market price of the security equals the exercise price. 
C) market price of the security is less than the exercise price. 
D) premium on the option is less than the exercise price.

Question 13

If a corporation hedges payables with currency call options, it will ____ if the value of the foreign currency is ____ than the exercise price when the payables are due.

Accepted Answer

A) exercise the option; greater 
B) exercise the option; lower 
C) let the option expire; greater 
D) let the option expire; lower 
E) exercise the option; greater AND let the option expire; lower 
A) exercise the option; greater 
B) exercise the option; lower 
C) let the option expire; greater 
D) let the option expire; lower 
E) exercise the option; greater AND let the option expire; lower

Question 14

The sale of a call option on a stock the seller already owns is referred to as

Accepted Answer

A) a covered call. 
B) a naked call. 
C) a  call on futures. 
D) futures on options. 
A) a covered call. 
B) a naked call. 
C) a  call on futures. 
D) futures on options.

Question 15

The writer of a put option is obligated to provide the specified financial instrument at the price specified by the option contract if the owner exercises the option. ​

Accepted Answer

A) True 
 B)False

Question 16

The purchaser of an American-style put option is always better off exercising the option at the expiration date than before that date. ​

Accepted Answer

A) True 
 B)False

Question 17

Options trading is regulated by the

Accepted Answer

A) Options Clearing Corporation. 
B) International Securities Exchange. 
C) Securities and Exchange Commission. 
D) Federal Reserve. 
A) Options Clearing Corporation. 
B) International Securities Exchange. 
C) Securities and Exchange Commission. 
D) Federal Reserve.

Question 18

The premium on an existing call option should ____ when the price of the underlying stock decreases.

Accepted Answer

A) be negative 
B) decline 
C) increase 
D) be unaffected 
E) be negative AND decline 
A) be negative 
B) decline 
C) increase 
D) be unaffected 
E) be negative AND decline

Question 19

An option with a higher exercise price has a higher call option premium and a lower put option premium.

Accepted Answer

A) True 
 B)False

Question 20

Marcie purchases a call option on interest rate futures with an exercise price of 92-10. The premium on the call option is 2-24. Just before the expiration date, the price of Treasury bond futures (which will have a face value of $100,000 at maturity)is 97-14. At this time, Marcie decides to exercise the option and closes out the position by selling an identical futures contract. Marcie's net gain from this strategy is $____.

Accepted Answer

A) - 2,687.50 
B) 2,687.50 
C) 2,375.00 
D) 7,437.50 
E) None of these are correct. 
A) - 2,687.50 
B) 2,687.50 
C) 2,375.00 
D) 7,437.50 
E) None of these are correct.

Exam 14: Options Markets

The ____ is the most important exchange for trading options.

A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. What is the stock price at which the speculator would break even? ​

Options on small stocks normally have higher premiums than options on large stocks because small stocks typically are more volatile.

The premium on an existing call option should ____ when there is an increase in the volatility of the underlying stock .

A speculator purchased a call option with an exercise price of $31 for a premium of $4. The option was exercised a few days later when the stock price was $34. What was the return to the speculator?

Which of the following is NOT true with respect to market makers?

Corporations involved in international business transactions can ____ to hedge future ____.

On an options exchange, most option trades are executed

Which of the following is NOT true regarding options and options on futures contracts?

Options on stock indexes representing non-U.S. stocks are ____; options exchanges have been established ____.

A put option is "out of the money" when the

If a corporation hedges payables with currency call options, it will ____ if the value of the foreign currency is ____ than the exercise price when the payables are due.

The sale of a call option on a stock the seller already owns is referred to as

The writer of a put option is obligated to provide the specified financial instrument at the price specified by the option contract if the owner exercises the option. ​

The purchaser of an American-style put option is always better off exercising the option at the expiration date than before that date. ​

Options trading is regulated by the

The premium on an existing call option should ____ when the price of the underlying stock decreases.

An option with a higher exercise price has a higher call option premium and a lower put option premium.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters

A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. What is the stock price at which the speculator would break even?

Corporations involved in international business transactions can to hedge future .

Options on stock indexes representing non-U.S. stocks are ; options exchanges have been established .

If a corporation hedges payables with currency call options, it will if the value of the foreign currency is than the exercise price when the payables are due.

The writer of a put option is obligated to provide the specified financial instrument at the price specified by the option contract if the owner exercises the option.

The purchaser of an American-style put option is always better off exercising the option at the expiration date than before that date.