Exhibit 22.2 Use the Information Below for the Following Problem(S) \[\begin{array} { c} &&\text{XYZ CORP}\\ & \quad\quad\quad\quad \text { Exercise } & & \quad\quad\quad\quad\quad\quad { \text { NYSE } } \\ & \text { Date } & \text { Price } & \text { Price } & \text { Clase } \\ \hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 101\quad11 / 16 \\ & \text { OCT } & 90 & 12 & 101\quad11 / 16 \\ & \text { OCT } & 95 & 75 / 8 & 101\quad11 / 16 \\ \text { Puts } & \text { OCT } & 85 & 1 / 8 & 101\quad11 / 16 \\ & \text { OCT } & 90 & 3 / 8 & 101\quad11 / 16 \\ & \text { OCT } & 95 & 13 / 16 & 101\quad11 / 16 \end{array}\] -Refer to Exhibit 22.2.If you establish a long strap using the options with an 85 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $1,687.50 loss B) $3,362.50 loss C) $3,675.50 gain D) $13.00 gain E) $13.00 loss A) $1,687.50 loss B) $3,362.50 loss C) $3,675.50 gain D) $13.00 gain E) $13.00 loss

Exhibit 22.4 Use the Information Below for the Following Problem(S) Consider the following information on put and call options for Citigroup \[\begin{array} { c c c } \text { otrike Price } & \text { Put Price } & \text { Call Price } \\ \hline\$ 32.50 & \$2.85 & \$1.65 \end{array}\] -Refer to Exhibit 22.4.Calculate the net value of a protective put position at a stock price at expiration of $20,and a stock price at expiration of $45.

A) $6.35, $18.85 B) $29.65, $42.15 C) $21.65, $34.15 D) $8, $8 E) -$8, -$8 A) $6.35, $18.85 B) $29.65, $42.15 C) $21.65, $34.15 D) $8, $8 E) -$8, -$8

Exhibit 22.4 Use the Information Below for the Following Problem(S) Consider the following information on put and call options for Citigroup \[\begin{array} { c c c } \text { otrike Price } & \text { Put Price } & \text { Call Price } \\ \hline\$ 32.50 & \$2.85 & \$1.65 \end{array}\] -Refer to Exhibit 22.4.Calculate the payoffs of a long straddle at a stock price at expiration of $20 and a stock price at expiration of $45.

A) $6.35, $18.85 B) $29.65, $42.15 C) $21.65, $34.15 D) $8, $8 E) -$8, -$8 A) $6.35, $18.85 B) $29.65, $42.15 C) $21.65, $34.15 D) $8, $8 E) -$8, -$8

Exhibit 22.1 Use the Information Below for the Following Problem(S) $\begin{array}{|l|c|l|l|l|} \hline \text { Option Type } & & \text { Currency } &{\text { Canadian dollar }} \\ \hline \text { Contract Size } & & 50000 & {\text { Canadian dollars }} \\ \hline \text { Expiry } & & \text { April } & & \\ \hline & & & & \\ \hline \text { Strike } & \text { Call } & \text { Put } & & \\ \hline \$ 0.815 & \$ 0.0118 & & & \\ \hline \$ 0.820 & & \$ 0.0068 & & \\ \hline \end{array}$ -Refer to Exhibit 22.1.If the spot rate at expiration is $0.80 and the call option was purchased,what is the dollar gain or loss?

A) $123 gain B) $590 loss C) $312 gain D) $237 gain E) $0 A) $123 gain B) $590 loss C) $312 gain D) $237 gain E) $0

Exam 22: Option Contracts

Exhibit 22.6 Use the Information Below for the Following Problem(S) The following information is provided in the context of a two period (two six month periods) binomial option pricing model. A stock currently trades at $60 per share, a call option on the stock has an exercise price of $65. The stock is equally likely to rise by 15% or fall by 15% during each six month period. The one-year risk free rate is 3%. -Refer to Exhibit 22.6.Calculate the price of the call option after the stock price has already moved up in value once (Cᵤ).

Free

(Multiple Choice)

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(87)

Question 1

Correct Answer:

Verified

A

Exhibit 22.3 Use the Information Below for the Following Problem(S) A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35. -Assume that you have just sold a stock for a loss at a price of $75,for tax purposes.You still wish to maintain exposure to the sold stock.Suppose that you buy a call with a strike price of $70 and a price of $6.75.Calculate the effective price paid to repurchase the stock if the price after 35 days is $65.

Free

(Multiple Choice)

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(73)

Question 2

Correct Answer:

Verified

A

It is always theoretically possible to use options as a perfect hedge against fluctuations in value of the underlying asset.

Free

(True/False)

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Question 3

Correct Answer:

Verified

True

The delta in the Black-Scholes model is simply the slope of a line tangent to the call option price curve.

(True/False)

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(76)

Question 4

Exhibit 22.5 Use the Information Below for the Following Problem(S) The information provided is relevant in the context of a one period (one year) binomial option pricing model. A stock currently trades at $50 per share, a call option on the stock has an exercise price of $45. The stock is equally likely to rise by 25% or fall by 25%. The one-year risk free rate is 2%. -Refer to Exhibit 22.5.Calculate the price of the call option today (C₀).

(Multiple Choice)

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Question 5

A calendar spread requires the purchase and sale of two calls or two puts in the same stock with

(Multiple Choice)

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Question 6

A currency call is like being ____ in the currency futures.

(Multiple Choice)

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Question 7

Exhibit 22.2 Use the Information Below for the Following Problem(S) XYZ CORP Exercise NYSE Date Price Price Clase Calls OCT 85 163/4 10111/16 OCT 90 12 10111/16 OCT 95 75/8 10111/16 Puts OCT 85 1/8 10111/16 OCT 90 3/8 10111/16 OCT 95 13/16 10111/16 -Refer to Exhibit 22.2.If you establish a long strap using the options with an 85 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

(Multiple Choice)

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Question 8

Exhibit 22.7 Use the Information Below for the Following Problem(S) GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00. -Refer to Exhibit 22.7.What would the net value of a covered call position be if the stock price at expiration is $35?

(Multiple Choice)

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Question 9

The most important input the investor must provide in determining option values is the strike price.

(True/False)

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Question 10

The binomial model is a continuous method for valuing options.

(True/False)

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(81)

Question 11

The longer the time to expiration,the greater the value of a call option.

(True/False)

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Question 12

Credit risk in the options market is only a concern to the option seller.

(True/False)

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Question 13

Exhibit 22.4 Use the Information Below for the Following Problem(S) Consider the following information on put and call options for Citigroup otrike Price Put Price Call Price \ 32.50 \2 .85 \1 .65 -Refer to Exhibit 22.4.Calculate the net value of a protective put position at a stock price at expiration of $20,and a stock price at expiration of $45.

(Multiple Choice)

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(72)

Question 14

Risk management is the driving force behind the futures options market.

(True/False)

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Question 15

A vertical spread involves buying and selling call options in the same stock with

(Multiple Choice)

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Question 16

Stock options expire on the Sunday following the third Saturday of the designated month.

(True/False)

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Question 17

In the Black-Scholes option pricing model,an increase in security price (S)will cause

(Multiple Choice)

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Question 18

Exhibit 22.4 Use the Information Below for the Following Problem(S) Consider the following information on put and call options for Citigroup otrike Price Put Price Call Price \ 32.50 \2 .85 \1 .65 -Refer to Exhibit 22.4.Calculate the payoffs of a long straddle at a stock price at expiration of $20 and a stock price at expiration of $45.

(Multiple Choice)

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(69)

Question 19

Exhibit 22.1 Use the Information Below for the Following Problem(S) Option Type Currency Canadian dollar Contract Size 50000 Canadian dollars Expiry April Strike Call Put \ 0.815 \ 0.0118 \ 0.820 \ 0.0068 -Refer to Exhibit 22.1.If the spot rate at expiration is $0.80 and the call option was purchased,what is the dollar gain or loss?

(Multiple Choice)

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(90)

Question 20

Exam 22: Option Contracts

It is always theoretically possible to use options as a perfect hedge against fluctuations in value of the underlying asset.

The delta in the Black-Scholes model is simply the slope of a line tangent to the call option price curve.

A calendar spread requires the purchase and sale of two calls or two puts in the same stock with

A currency call is like being ____ in the currency futures.

The most important input the investor must provide in determining option values is the strike price.

The binomial model is a continuous method for valuing options.

The longer the time to expiration,the greater the value of a call option.

Credit risk in the options market is only a concern to the option seller.

Risk management is the driving force behind the futures options market.

A vertical spread involves buying and selling call options in the same stock with

Stock options expire on the Sunday following the third Saturday of the designated month.

In the Black-Scholes option pricing model,an increase in security price (S)will cause

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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