Question 1

What is the call option premium given the following information?

Accepted Answer

A)  $4.63 
B)  $5.28 
C)  $6.39 
D)  $7.60 
E)  $8.66 
A)  $4.63 
B)  $5.28 
C)  $6.39 
D)  $7.60 
E)  $8.66

Question 2

What is the put option premium given the following information?

Accepted Answer

A)  $7.49 
B)  $7.98 
C)  $8.28 
D)  $8.76 
E)  $9.64 
A)  $7.49 
B)  $7.98 
C)  $8.28 
D)  $8.76 
E)  $9.64

Question 3

Which option price(s)will increase when the dividend yield increases?

Accepted Answer

A)  both the call and put 
B)  call only 
C)  put only 
D)  neither the call nor the put 
E)  Answer cannot be determined from the information provided. 
A)  both the call and put 
B)  call only 
C)  put only 
D)  neither the call nor the put 
E)  Answer cannot be determined from the information provided.

Question 4

Which two of the following are the key reasons why most major corporations issue employee stock options?
I.provide an employee benefit in place of a retirement plan
II.no immediate cost to the corporation
III.align management and shareholder interests
IV.replace employer-provided insurance benefits

Accepted Answer

A)  I and II only 
B)  I and III only 
C)  II and III only 
D)  II and IV only 
E)  III and IV only 
A)  I and II only 
B)  I and III only 
C)  II and III only 
D)  II and IV only 
E)  III and IV only

Question 5

You own 1,800 shares of Textile stock which is currently valued at $62 a share.The $65 put has a premium of $4.26 and a put delta of -0.60.What position should you take in $65 put contracts to hedge your stock against a $1 decrease in price?

Accepted Answer

A)  buy 3 contracts 
B)  buy 30 contracts 
C)  buy 300 contracts 
D)  write 3 contracts 
E)  write 30 contracts 
A)  buy 3 contracts 
B)  buy 30 contracts 
C)  buy 300 contracts 
D)  write 3 contracts 
E)  write 30 contracts

Question 6

You own 2,500 shares of Jordan Co.stock which is currently valued at $38 a share.The $40 put has a premium of $2.25 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

Accepted Answer

A)  buy 100 contracts 
B)  buy 1,000 contracts 
C)  buy 10,000 contracts 
D)  write 100 contracts 
E)  write 1,000 contracts 
A)  buy 100 contracts 
B)  buy 1,000 contracts 
C)  buy 10,000 contracts 
D)  write 100 contracts 
E)  write 1,000 contracts

Question 7

What is the call option premium given the following information?

Accepted Answer

A)  $7.16 
B)  $7.78 
C)  $8.58 
D)  $9.03 
E)  $9.49 
A)  $7.16 
B)  $7.78 
C)  $8.58 
D)  $9.03 
E)  $9.49

Question 8

Mike was granted stock options on 1,000 shares of his employer's stock.The stock is currently selling for $27.70 a share and has a standard deviation of 36 percent.The option's strike price is $27.50 and the time to maturity is 10 years.What is the value of each option given a risk-free rate of 3 percent? Assume that no dividends are paid.

Accepted Answer

A)  $14.35 
B)  $15.67 
C)  $17.80 
D)  $20.15 
E)  $22.70 
A)  $14.35 
B)  $15.67 
C)  $17.80 
D)  $20.15 
E)  $22.70

Question 9

A stock with a current price of $43 will either move up by a factor of 1.20 or down by a factor of 0.80 each period over the next two periods.The risk-free rate of interest is 3 percent.What is the current value of a call option with a strike price of $45?

Accepted Answer

A)  $4.38 
B)  $4.55 
C)  $4.72 
D)  $5.16 
E)  $5.27 
A)  $4.38 
B)  $4.55 
C)  $4.72 
D)  $5.16 
E)  $5.27

Question 10

A stock with a current price of $40 will either move up to $41 or down to $39 over the next period.The risk-free rate of interest is 2.45 percent.What is the value of a call option with a strike price of $40?

Accepted Answer

A)  $0.49 
B)  $0.68 
C)  $0.86 
D)  $0.97 
E)  $1.21 
A)  $0.49 
B)  $0.68 
C)  $0.86 
D)  $0.97 
E)  $1.21

Question 11

Given a set of variables,the Black-Scholes option pricing formula has a call option delta of 0.496.What is the put delta given these same variables?

Accepted Answer

A)  -1.496 
B)  -0.504 
C)  0.504 
D)  1.496 
E)  The answer cannot be determined based on the information provided. 
A)  -1.496 
B)  -0.504 
C)  0.504 
D)  1.496 
E)  The answer cannot be determined based on the information provided.

Question 12

Which of the following statements related to employee stock options (ESO)are generally correct?
I.ESO vesting encourages long-term employment.
II.Most ESOs are issued at-the-money.
III.ESOs cannot be resold.
IV.ESOs that are in-the-money are frequently repriced.

Accepted Answer

A)  I and II only 
B)  I and IV only 
C)  II and III only 
D)  I, II, and III only 
E)  I, II, III, and IV 
A)  I and II only 
B)  I and IV only 
C)  II and III only 
D)  I, II, and III only 
E)  I, II, III, and IV

Question 13

A stock with a current price of $32 will either move up to $40.00 or down to $30 over the next period.The risk-free rate of interest is 3 percent.What is the value of a call option with a strike price of $35?

Accepted Answer

A)  $1.30 
B)  $1.44 
C)  $1.87 
D)  $2.09 
E)  $2.41 
A)  $1.30 
B)  $1.44 
C)  $1.87 
D)  $2.09 
E)  $2.41

Question 14

All else constant,which one of the following situations will produce the highest call price given a strike price of $25?

Accepted Answer

A)  $30 stock price; 40 days to option expiration 
B)  $30 stock price; 60 days to option expiration 
C)  $35 stock price; 40 days to option expiration 
D)  $35 stock price; 60 days to option expiration 
E)  Insufficient information is provided to answer this question. 
A)  $30 stock price; 40 days to option expiration 
B)  $30 stock price; 60 days to option expiration 
C)  $35 stock price; 40 days to option expiration 
D)  $35 stock price; 60 days to option expiration 
E)  Insufficient information is provided to answer this question.

Question 15

Which one of the following statements is correct concerning the Black-Scholes option pricing model?

Accepted Answer

A)  The model assumes a stock pays a constant annual dividend. 
B)  The model expresses time in terms of years. 
C)  The model is based on American-style options. 
D)  The model assumes that the current stock price is equal to the strike price. 
E)  The model assumes the put is in-the-money. 
A)  The model assumes a stock pays a constant annual dividend. 
B)  The model expresses time in terms of years. 
C)  The model is based on American-style options. 
D)  The model assumes that the current stock price is equal to the strike price. 
E)  The model assumes the put is in-the-money.

Question 16

You own 4,800 shares of a stock that is currently priced at $34 a share.Given this price,the option delta for a $30 call option on this stock is 0.955.How many $30 call option contracts do you need to hedge against a -$1 change in the price of the stock?

Accepted Answer

A)  buy 50 option contracts 
B)  buy 503 option contracts 
C)  write 50 option contracts 
D)  write 503 option contracts 
E)  write 5,026 option contracts 
A)  buy 50 option contracts 
B)  buy 503 option contracts 
C)  write 50 option contracts 
D)  write 503 option contracts 
E)  write 5,026 option contracts

Question 17

You have determined that you need -1,589 call options to hedge your stock portfolio.What should you do based on this information?

Accepted Answer

A)  buy 16 call option contracts 
B)  buy 1,589 call option contracts 
C)  write 16 call option contracts 
D)  write 160 call option contracts 
E)  write 1,589 call option contracts 
A)  buy 16 call option contracts 
B)  buy 1,589 call option contracts 
C)  write 16 call option contracts 
D)  write 160 call option contracts 
E)  write 1,589 call option contracts

Question 18

Repricing an employee stock option involves which one of the following?

Accepted Answer

A)  stock-split 
B)  stock dividend 
C)  change in option strike price 
D)  change in option expiration date 
E)  change in option premium 
A)  stock-split 
B)  stock dividend 
C)  change in option strike price 
D)  change in option expiration date 
E)  change in option premium

Question 19

Which of the following will result from a decrease in an option's strike price?
I.increase in call option price
II.decrease in call option price
III.increase in put option price
IV.decrease in put option price

Accepted Answer

A)  I only 
B)  I and III only 
C)  I and IV only 
D)  II and III only 
E)  II and IV only 
A)  I only 
B)  I and III only 
C)  I and IV only 
D)  II and III only 
E)  II and IV only

Question 20

Stock prices and call option prices are:

Accepted Answer

A)  unrelated. 
B)  negatively correlated. 
C)  directly related. 
D)  perfectly related. 
E)  inversely related. 
A)  unrelated. 
B)  negatively correlated. 
C)  directly related. 
D)  perfectly related. 
E)  inversely related.

What is the call option premium given the following information?

What is the put option premium given the following information?

Which option price(s)will increase when the dividend yield increases?

Which two of the following are the key reasons why most major corporations issue employee stock options? I.provide an employee benefit in place of a retirement plan II.no immediate cost to the corporation III.align management and shareholder interests IV.replace employer-provided insurance benefits

You own 1,800 shares of Textile stock which is currently valued at $62 a share.The $65 put has a premium of $4.26 and a put delta of -0.60.What position should you take in $65 put contracts to hedge your stock against a $1 decrease in price?

You own 2,500 shares of Jordan Co.stock which is currently valued at $38 a share.The $40 put has a premium of $2.25 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

What is the call option premium given the following information?

A stock with a current price of $43 will either move up by a factor of 1.20 or down by a factor of 0.80 each period over the next two periods.The risk-free rate of interest is 3 percent.What is the current value of a call option with a strike price of $45?

A stock with a current price of $40 will either move up to $41 or down to $39 over the next period.The risk-free rate of interest is 2.45 percent.What is the value of a call option with a strike price of $40?

Given a set of variables,the Black-Scholes option pricing formula has a call option delta of 0.496.What is the put delta given these same variables?

Which of the following statements related to employee stock options (ESO)are generally correct? I.ESO vesting encourages long-term employment. II.Most ESOs are issued at-the-money. III.ESOs cannot be resold. IV.ESOs that are in-the-money are frequently repriced.

A stock with a current price of $32 will either move up to $40.00 or down to $30 over the next period.The risk-free rate of interest is 3 percent.What is the value of a call option with a strike price of $35?

All else constant,which one of the following situations will produce the highest call price given a strike price of $25?

Which one of the following statements is correct concerning the Black-Scholes option pricing model?

You own 4,800 shares of a stock that is currently priced at $34 a share.Given this price,the option delta for a $30 call option on this stock is 0.955.How many $30 call option contracts do you need to hedge against a -$1 change in the price of the stock?

You have determined that you need -1,589 call options to hedge your stock portfolio.What should you do based on this information?

Repricing an employee stock option involves which one of the following?

Which of the following will result from a decrease in an option's strike price? I.increase in call option price II.decrease in call option price III.increase in put option price IV.decrease in put option price

Stock prices and call option prices are:

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 16: Option Valuation

What is the call option premium given the following information?

What is the put option premium given the following information?

Which option price(s)will increase when the dividend yield increases?

Which two of the following are the key reasons why most major corporations issue employee stock options? I.provide an employee benefit in place of a retirement plan II.no immediate cost to the corporation III.align management and shareholder interests IV.replace employer-provided insurance benefits

You own 1,800 shares of Textile stock which is currently valued at $62 a share.The $65 put has a premium of $4.26 and a put delta of -0.60.What position should you take in $65 put contracts to hedge your stock against a $1 decrease in price?

You own 2,500 shares of Jordan Co.stock which is currently valued at $38 a share.The $40 put has a premium of $2.25 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

What is the call option premium given the following information?

A stock with a current price of $43 will either move up by a factor of 1.20 or down by a factor of 0.80 each period over the next two periods.The risk-free rate of interest is 3 percent.What is the current value of a call option with a strike price of $45?

A stock with a current price of $40 will either move up to $41 or down to $39 over the next period.The risk-free rate of interest is 2.45 percent.What is the value of a call option with a strike price of $40?

Given a set of variables,the Black-Scholes option pricing formula has a call option delta of 0.496.What is the put delta given these same variables?

Which of the following statements related to employee stock options (ESO)are generally correct? I.ESO vesting encourages long-term employment. II.Most ESOs are issued at-the-money. III.ESOs cannot be resold. IV.ESOs that are in-the-money are frequently repriced.

A stock with a current price of $32 will either move up to $40.00 or down to $30 over the next period.The risk-free rate of interest is 3 percent.What is the value of a call option with a strike price of $35?

All else constant,which one of the following situations will produce the highest call price given a strike price of $25?

Which one of the following statements is correct concerning the Black-Scholes option pricing model?

You own 4,800 shares of a stock that is currently priced at $34 a share.Given this price,the option delta for a $30 call option on this stock is 0.955.How many $30 call option contracts do you need to hedge against a -$1 change in the price of the stock?

You have determined that you need -1,589 call options to hedge your stock portfolio.What should you do based on this information?

Repricing an employee stock option involves which one of the following?

Which of the following will result from a decrease in an option's strike price? I.increase in call option price II.decrease in call option price III.increase in put option price IV.decrease in put option price

Stock prices and call option prices are:

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters