Question 1

A put option on a stock is said to be out of 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 2

The current market price of a share of MOT stock is $24.If a call option on this stock has a strike price of $24, the call

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) is at the money. 
D) None of the options 
A) is out of the money. 
B) is in the money. 
C) is at the money. 
D) None of the options

Question 3

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 4

The current market price of a share of TSCO stock is $75.If a put option on this stock has a strike price of $79, the put

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) can be exercised profitably. 
D) is out of the money and can be exercised profitably. 
E) is in the money and can be exercised profitably. 
A) is out of the money. 
B) is in the money. 
C) can be exercised profitably. 
D) is out of the money and can be exercised profitably. 
E) is in the money and can be exercised profitably.

Question 5

Buyers of put options anticipate the value of the underlying asset will __________ and sellers of call options anticipate the value of the underlying asset will ________.

Accepted Answer

A) increase; increase 
B) decrease; increase 
C) increase; decrease 
D) decrease; decrease 
E) Cannot tell without further information 
A) increase; increase 
B) decrease; increase 
C) increase; decrease 
D) decrease; decrease 
E) Cannot tell without further information

Question 6

You purchase one IBM March 200 put contract for a put premium of $6.What is the maximum profit that you could gain from this strategy

Accepted Answer

A) $20,000 
B) $20,600 
C) $19,400 
D) $19,000 
A) $20,000 
B) $20,600 
C) $19,400 
D) $19,000

Question 7

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 
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

Question 8

The current market price of a share of MOT stock is $15.If a put option on this stock has a strike price of $20, the put

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) can be exercised profitably. 
D) is out of the money and can be exercised profitably. 
E) is in the money and can be exercised profitably. 
A) is out of the money. 
B) is in the money. 
C) can be exercised profitably. 
D) is out of the money and can be exercised profitably. 
E) is in the money and can be exercised profitably.

Question 9

You buy one Home Depot June 60 call contract and one June 60 put contract.The call premium is $5 and the put premium is $3. At expiration, you break even if the stock price is equal to

Accepted Answer

A) $52. 
B) $60. 
C) $68. 
D) both $52 and $68. 
E) None of the options 
A) $52. 
B) $60. 
C) $68. 
D) both $52 and $68. 
E) None of the options

Question 10

To adjust for stock splits

Accepted Answer

A) the exercise price of the option is reduced by the factor of the split and the number of options held is increased by that factor. 
B) the exercise price of the option is increased by the factor of the split and the number of options held is reduced by that factor. 
C) the exercise price of the option is reduced by the factor of the split and the number of options held is reduced by that factor. 
D) the exercise price of the option is increased by the factor of the split and the number of options held is increased by that factor. 
A) the exercise price of the option is reduced by the factor of the split and the number of options held is increased by that factor. 
B) the exercise price of the option is increased by the factor of the split and the number of options held is reduced by that factor. 
C) the exercise price of the option is reduced by the factor of the split and the number of options held is reduced by that factor. 
D) the exercise price of the option is increased by the factor of the split and the number of options held is increased by that factor.

Question 11

A European call option allows the buyer to

Accepted Answer

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

Question 12

A European put option can be exercised

Accepted Answer

A) any time in the future. 
B) only on the expiration date. 
C) if the price of the underlying asset declines below the exercise price. 
D) immediately after dividends are paid. 
A) any time in the future. 
B) only on the expiration date. 
C) if the price of the underlying asset declines below the exercise price. 
D) immediately after dividends are paid.

Question 13

A call option on a stock is said to be out of 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 14

A protective put strategy is

Accepted Answer

A) a long put plus a long position in the underlying asset. 
B) a long put plus a long call on the same underlying asset. 
C) a long call plus a short put on the same underlying asset. 
D) a long put plus a short call on the same underlying asset. 
E) None of the options 
A) a long put plus a long position in the underlying asset. 
B) a long put plus a long call on the same underlying asset. 
C) a long call plus a short put on the same underlying asset. 
D) a long put plus a short call on the same underlying asset. 
E) None of the options

Question 15

Top Flight Stock currently sells for $53.A one-year call option with strike price of $58 sells for $10, and the risk-free interest rate is 5.5%.What is the price of a one-year put with strike price of $58

Accepted Answer

A) $10.00 
B) $12.12 
C) $16.00 
D) $11.97 
E) $14.13 
A) $10.00 
B) $12.12 
C) $16.00 
D) $11.97 
E) $14.13

Question 16

A callable bond should be priced the same as

Accepted Answer

A) a convertible bond. 
B) a straight bond plus a put option. 
C) a straight bond plus a call option. 
D) a straight bond plus warrants. 
E) a straight bond. 
A) a convertible bond. 
B) a straight bond plus a put option. 
C) a straight bond plus a call option. 
D) a straight bond plus warrants. 
E) a straight bond.

Question 17

The price that the buyer of a call option pays to acquire the option is called the

Accepted Answer

A) strike price. 
B) exercise price. 
C) execution price. 
D) acquisition price. 
E) premium. 
A) strike price. 
B) exercise price. 
C) execution price. 
D) acquisition price. 
E) premium.

Question 18

You purchase one June 70 put contract for a put premium of $4.What is the maximum profit that you could gain from this strategy

Accepted Answer

A) $7,000 
B) $400 
C) $7,400 
D) $6,600 
E) None of the options 
A) $7,000 
B) $400 
C) $7,400 
D) $6,600 
E) None of the options

Question 19

The current market price of a share of a stock is $20.If a put option on this stock has a strike price of $18, the put

Accepted Answer

A) is out of the money. 
B) is in the money. 
C) sells for a higher price than if the strike price of the put option was $23. 
D) is out of the money and sells for a higher price than if the strike price of the put option was $23. 
E) is in the money and sells for a higher price than if the strike price of the put option was $23. 
A) is out of the money. 
B) is in the money. 
C) sells for a higher price than if the strike price of the put option was $23. 
D) is out of the money and sells for a higher price than if the strike price of the put option was $23. 
E) is in the money and sells for a higher price than if the strike price of the put option was $23.

Question 20

An American put 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 
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

Exam 20: Options Markets: Introduction

A put option on a stock is said to be out of the money if

The current market price of a share of MOT stock is $24.If a call option on this stock has a strike price of $24, the call

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

The current market price of a share of TSCO stock is $75.If a put option on this stock has a strike price of $79, the put

Buyers of put options anticipate the value of the underlying asset will __________ and sellers of call options anticipate the value of the underlying asset will ________.

You purchase one IBM March 200 put contract for a put premium of $6.What is the maximum profit that you could gain from this strategy

An American call option can be exercised

The current market price of a share of MOT stock is $15.If a put option on this stock has a strike price of $20, the put

You buy one Home Depot June 60 call contract and one June 60 put contract.The call premium is $5 and the put premium is $3. At expiration, you break even if the stock price is equal to

To adjust for stock splits

A European call option allows the buyer to

A European put option can be exercised

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

A protective put strategy is

Top Flight Stock currently sells for $53.A one-year call option with strike price of $58 sells for $10, and the risk-free interest rate is 5.5%.What is the price of a one-year put with strike price of $58

A callable bond should be priced the same as

The price that the buyer of a call option pays to acquire the option is called the

You purchase one June 70 put contract for a put premium of $4.What is the maximum profit that you could gain from this strategy

The current market price of a share of a stock is $20.If a put option on this stock has a strike price of $18, the put

An American put option can be exercised

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

Optimal Risky Portfolios

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

Buyers of put options anticipate the value of the underlying asset will __ and sellers of call options anticipate the value of the underlying asset will .