Question 1

The Options Clearing Corporation (OCC)acts as the guarantor of each Chicago Board Options Exchange (CBOE)traded contract.

Accepted Answer

A) True 
 B)False

Question 2

The calculation of a weighted average of the implied volatility estimates from options on the Standard & Poor's 500 index using a wide range of exercise prices is known as

Accepted Answer

A)  Spider. 
B)  QQQ. 
C)  VIX. 
D)  CIN. 
E)  VOL. 
A)  Spider. 
B)  QQQ. 
C)  VIX. 
D)  CIN. 
E)  VOL.

Question 3

Investors should purchase market index put options if they anticipate an increase in the index value.

Accepted Answer

A) True 
 B)False

Question 4

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.A long strap is an appropriate strategy if

Accepted Answer

A)  An investor wishes to generate additional income. 
B)  An investor wished to insure against a decline in share values. 
C)  An investor expected share prices to be volatile. 
D)  An investor expected share prices to remain in a trading range. 
E)  An investor expected share prices to be volatile, but was inclined to be bullish. 
A)  An investor wishes to generate additional income. 
B)  An investor wished to insure against a decline in share values. 
C)  An investor expected share prices to be volatile. 
D)  An investor expected share prices to remain in a trading range. 
E)  An investor expected share prices to be volatile, but was inclined to be bullish.

Question 5

A foreign currency option contract traded on U.S.exchanges allows for the sale or purchase of a set amount of

Accepted Answer

A)  U.S. currency at a floating exchange rate 
B)  U.S. currency at a fixed exchange rate 
C)  Foreign currency at a floating exchange rate 
D)  Foreign currency at a fixed exchange rate 
E)  None of the above 
A)  U.S. currency at a floating exchange rate 
B)  U.S. currency at a fixed exchange rate 
C)  Foreign currency at a floating exchange rate 
D)  Foreign currency at a fixed exchange rate 
E)  None of the above

Question 6

Exhibit 22.8
Use the Information Below for the Following Problem(S)
Consider the following information on put and call options for a common stock
 $$\begin{array} { c c c } 
\text { Wtrike Price } & \text { Put Price } & \text { Call Price } \
\hline \$22.50 &\$ 2.65 & \$ 1.85
\end{array}$$
-Refer to Exhibit 22.8.Calculate the payoff of a long straddle at an expiration stock price of $20.

Accepted Answer

A)  -$4.50 
B)  -$2.00 
C)  $2.00 
D)  $4.50 
E)  $20.50 
A)  -$4.50 
B)  -$2.00 
C)  $2.00 
D)  $4.50 
E)  $20.50

Question 7

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.A covered call is an appropriate strategy if

Accepted Answer

A)  An investor wishes to generate additional income. 
B)  An investor wished to insure against a decline in share values. 
C)  An investor expected share prices to be volatile. 
D)  An investor expected share prices to remain in a trading range. 
E)  An investor expected share prices to be volatile, but was inclined to be bullish. 
A)  An investor wishes to generate additional income. 
B)  An investor wished to insure against a decline in share values. 
C)  An investor expected share prices to be volatile. 
D)  An investor expected share prices to remain in a trading range. 
E)  An investor expected share prices to be volatile, but was inclined to be bullish.

Question 8

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 straddle using the options with a 90 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

Accepted Answer

A)  $68.75 loss 
B)  $68.75 gain 
C)  $37.50 loss 
D)  $1,200.00 loss 
E)  $1,200.00 gain 
A)  $68.75 loss 
B)  $68.75 gain 
C)  $37.50 loss 
D)  $1,200.00 loss 
E)  $1,200.00 gain

Question 9

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 $0.75 and the put option was purchased,what is the dollar gain or loss?

Accepted Answer

A)  $0 
B)  $200 loss 
C)  $200 gain 
D)  $3160 gain 
E)  $1187 loss 
A)  $0 
B)  $200 loss 
C)  $200 gain 
D)  $3160 gain 
E)  $1187 loss

Question 10

Index options can only be settled in cash.

Accepted Answer

A) True 
 B)False

Question 11

Options on futures expire at the same time the futures contract expires.

Accepted Answer

A) True 
 B)False

Question 12

The buyer of a straddle expects stock prices to move strongly in either direction.

Accepted Answer

A) True 
 B)False

Question 13

Unlike stock options,futures options require the holder to enter into a futures contract.

Accepted Answer

A) True 
 B)False

Question 14

Buying a bear spread is equivalent to

Accepted Answer

A)  Selling a bull spread. 
B)  Buying an out-of-the-money call and selling an in-the-money call on the same stock with the same exercise date. 
C)  Selling an out-of-the-money call and buying an in-the-money call on the same stock with a different exercise price. 
D)  Choices a and b only. 
E)  None of the above 
A)  Selling a bull spread. 
B)  Buying an out-of-the-money call and selling an in-the-money call on the same stock with the same exercise date. 
C)  Selling an out-of-the-money call and buying an in-the-money call on the same stock with a different exercise price. 
D)  Choices a and b only. 
E)  None of the above

Question 15

If you were to purchase an October option with an exercise price of 50 for $8 and simultaneously sell an October option with an exercise price of 60 for $2,you would be

Accepted Answer

A)  Bullish and taking a high risk. 
B)  Bullish and conservative. 
C)  Bearish and taking a high risk. 
D)  Bearish and conservative. 
E)  Neutral. 
A)  Bullish and taking a high risk. 
B)  Bullish and conservative. 
C)  Bearish and taking a high risk. 
D)  Bearish and conservative. 
E)  Neutral.

Question 16

If the hedge ratio is 0.50,this indicates that the portfolio should hold

Accepted Answer

A)  Two shares of stock for every call option written. 
B)  One share of stock for every two call options written. 
C)  Two shares of stock for every call option purchased. 
D)  One share of stock for every two call options purchased. 
E)  Two call options for every put option written. 
A)  Two shares of stock for every call option written. 
B)  One share of stock for every two call options written. 
C)  Two shares of stock for every call option purchased. 
D)  One share of stock for every two call options purchased. 
E)  Two call options for every put option written.

Question 17

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 a 90 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

Accepted Answer

A)  $37.50 loss 
B)  $37.50 gain 
C)  $100.00 loss 
D)  $100.00 gain 
E)  $2,437.50 loss 
A)  $37.50 loss 
B)  $37.50 gain 
C)  $100.00 loss 
D)  $100.00 gain 
E)  $2,437.50 loss

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
 $$\begin{array} { c c c } 
\text { otrike Price } & \text { Put Price } & \text { Call Price } \
\hline\$ 32.50 & \$2.85 & \$1.65
\end{array}$$
-Refer to Exhibit 22.4.Calculate the payoffs of a short straddle at a stock price at expiration of $20 and a stock price at expiration of $45.

Accepted Answer

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

Question 19

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 strip using the options with a 90 exercise price,what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

Accepted Answer

A)  $106.25 gain 
B)  $106.25 loss 
C)  $1,275.00 loss 
D)  $1,275.00 gain 
E)  $75.00 loss 
A)  $106.25 gain 
B)  $106.25 loss 
C)  $1,275.00 loss 
D)  $1,275.00 gain 
E)  $75.00 loss

Question 20

The Black-Scholes model assumes that stock price movements can be described by

Accepted Answer

A)  Geometric moving averages. 
B)  Arithmetic moving averages. 
C)  Regression towards the mean. 
D)  Geometric Brownian motion. 
E)  Stochastic time lags. 
A)  Geometric moving averages. 
B)  Arithmetic moving averages. 
C)  Regression towards the mean. 
D)  Geometric Brownian motion. 
E)  Stochastic time lags.

Exam 22: Option Contracts

The Options Clearing Corporation (OCC)acts as the guarantor of each Chicago Board Options Exchange (CBOE)traded contract.

The calculation of a weighted average of the implied volatility estimates from options on the Standard & Poor's 500 index using a wide range of exercise prices is known as

Investors should purchase market index put options if they anticipate an increase in the index value.

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.A long strap is an appropriate strategy if

A foreign currency option contract traded on U.S.exchanges allows for the sale or purchase of a set amount of

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.A covered call is an appropriate strategy if

Index options can only be settled in cash.

Options on futures expire at the same time the futures contract expires.

The buyer of a straddle expects stock prices to move strongly in either direction.

Unlike stock options,futures options require the holder to enter into a futures contract.

Buying a bear spread is equivalent to

If you were to purchase an October option with an exercise price of 50 for $8 and simultaneously sell an October option with an exercise price of 60 for $2,you would be

If the hedge ratio is 0.50,this indicates that the portfolio should hold

The Black-Scholes model assumes that stock price movements can be described by

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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