Question 1

The Chicago Board Options Exchange opened in:

Accepted Answer

A) 1970. 
B) 1971. 
C) 1972. 
D) 1973. 
A) 1970. 
B) 1971. 
C) 1972. 
D) 1973.

Question 2

Calculate the price of a two-month European put option given the following information: the exercise price is $19,the current share price is $15 and the risk-free interest rate is 12% p.a.Furthermore,the share price may go up by 10 per cent or down by 10 per cent at the end of each month.Assume a risk-neutral world and time periods of one month each.

Accepted Answer

A) $4.26 
B) $3.66 
C) $4.21 
D) $3.63 
A) $4.26 
B) $3.66 
C) $4.21 
D) $3.63

Question 3

A payoff structure resembling that of a short futures position can be created by:

Accepted Answer

A) buying a call option and selling a put option,with the same exercise price and premium for both options. 
B) selling a call option and buying a put option,with the same exercise price and premium for both options. 
C) buying a call option and buying a put option,with the same exercise price and premium for both options. 
D) selling a call option and selling a put option,with the same exercise price and premium for both options. 
A) buying a call option and selling a put option,with the same exercise price and premium for both options. 
B) selling a call option and buying a put option,with the same exercise price and premium for both options. 
C) buying a call option and buying a put option,with the same exercise price and premium for both options. 
D) selling a call option and selling a put option,with the same exercise price and premium for both options.

Question 4

Which of the following statements regarding call options is true?

Accepted Answer

A) The price paid for a call option should reflect,amongst other factors,the probability that the underlying share price will rise above the exercise price. 
B) The price paid for a call option should reflect,amongst other factors,the expected future direction of the share price. 
C) The price paid for a call option should reflect,amongst other factors,the probability that the underlying share price will equal the exercise price. 
D) None of the given options. 
A) The price paid for a call option should reflect,amongst other factors,the probability that the underlying share price will rise above the exercise price. 
B) The price paid for a call option should reflect,amongst other factors,the expected future direction of the share price. 
C) The price paid for a call option should reflect,amongst other factors,the probability that the underlying share price will equal the exercise price. 
D) None of the given options.

Question 5

Ratio of the change in an option price that results from a change in the price of the underlying assets is known as the option's:

Accepted Answer

A) beta. 
B) delta. 
C) theta. 
D) gamma. 
A) beta. 
B) delta. 
C) theta. 
D) gamma.

Question 6

Using the Black-Scholes formula,calculate the price of a put option from the following information: exercise price $3.00;current share price $3.30;term to expiry three months;standard deviation 0.30 p.a. ;and risk-free interest rate 10% p.a.continuously compounded.

Accepted Answer

A) $0.1586 
B) $1.029 
C) $1.9875 
D) $0.0559 
A) $0.1586 
B) $1.029 
C) $1.9875 
D) $0.0559

Question 7

A call option can have a negative payoff,however the payoff on a put option is always positive.

Accepted Answer

A) True 
 B)False

Question 8

Calculate the price of a European call option if the price of the equivalent European put option is $5 and the share price,exercise price and risk-free rate (continuously compounded)are $31,$28 and 12% p.a. ,respectively.The options have three months to expiry.

Accepted Answer

A) $1.17 
B) $8.83 
C) $8.82 
D) $9.63 
E) $1.18 
A) $1.17 
B) $8.83 
C) $8.82 
D) $9.63 
E) $1.18

Question 9

An option creates the obligation for delivery of the underlying asset at a pre-determined point of time in the future.

Accepted Answer

A) True 
 B)False

Question 10

All things being equal,the more ________________ is the underlying share price,call prices should be higher.

Accepted Answer

The answer of All things being equal,the more ________________ is...

Question 11

Which of the following is a potential disadvantage of privately negotiated options?

Accepted Answer

A) It is often difficult to find a party with whom to contract. 
B) It is not possible to reverse out of a contract before the agreed expiry date. 
C) It may be necessary to investigate the creditworthiness of the other party. 
D) All of the given options. 
A) It is often difficult to find a party with whom to contract. 
B) It is not possible to reverse out of a contract before the agreed expiry date. 
C) It may be necessary to investigate the creditworthiness of the other party. 
D) All of the given options.

Question 12

For each of the options shown in the following table,use the cost of underlying share price at expiration along with the other information to determine the amount of profit or loss an investor would have had,ignoring transaction/brokerage costs.

Accepted Answer

The answer of For each of the options shown in...

Question 13

The put-call parity theorem suggests that:

Accepted Answer

A) arbitrage opportunities exist. 
B) the call price equals the put price,less the share price,plus the present value of the exercise price. 
C) options should not be exercised early unless there are dividends. 
D) the put price equals the call price,less the share price,plus the present value of the exercise price. 
A) arbitrage opportunities exist. 
B) the call price equals the put price,less the share price,plus the present value of the exercise price. 
C) options should not be exercised early unless there are dividends. 
D) the put price equals the call price,less the share price,plus the present value of the exercise price.

Question 14

Calculate the price of a two-month European call option given the following information: the exercise price is $19,the current share price is $20 and the risk-free interest rate is 15% p.a.Furthermore,the share price may go up by 15 per cent or down by 15 per cent at the end of each month.Assume a risk-neutral world and time periods of one month each.

Accepted Answer

A) $2.40 
B) $1.79 
C) $2.43 
D) $1.82 
A) $2.40 
B) $1.79 
C) $2.43 
D) $1.82

Question 15

The price of an option is affected by the risk-free interest rate.

Accepted Answer

A) True 
 B)False

Question 16

The Black-Scholes model of call option pricing is only valid for American type call options.

Accepted Answer

A) True 
 B)False

Question 17

A _______________ call option can only be exercised on maturity.

Accepted Answer

The answer of A _______________ call option can only be...

Question 18

If the share price at the expiry of a call option is less than the exercise price,the call is worth:

Accepted Answer

A) zero. 
B) the difference between the exercise price and the share price. 
C) the market price of the share. 
D) an undefined amount. 
A) zero. 
B) the difference between the exercise price and the share price. 
C) the market price of the share. 
D) an undefined amount.

Question 19

In most instances an American call option should not be exercised early.

Accepted Answer

A) True 
 B)False

Question 20

The value of an option in excess of its intrinsic value is known as:

Accepted Answer

A) time value. 
B) strike value. 
C) current value. 
D) none of the given options. 
A) time value. 
B) strike value. 
C) current value. 
D) none of the given options.

The Chicago Board Options Exchange opened in:

A payoff structure resembling that of a short futures position can be created by:

Which of the following statements regarding call options is true?

Ratio of the change in an option price that results from a change in the price of the underlying assets is known as the option's:

Using the Black-Scholes formula,calculate the price of a put option from the following information: exercise price $3.00;current share price $3.30;term to expiry three months;standard deviation 0.30 p.a. ;and risk-free interest rate 10% p.a.continuously compounded.

A call option can have a negative payoff,however the payoff on a put option is always positive.

Calculate the price of a European call option if the price of the equivalent European put option is $5 and the share price,exercise price and risk-free rate (continuously compounded)are $31,$28 and 12% p.a. ,respectively.The options have three months to expiry.

An option creates the obligation for delivery of the underlying asset at a pre-determined point of time in the future.

All things being equal,the more ________________ is the underlying share price,call prices should be higher.

Which of the following is a potential disadvantage of privately negotiated options?

For each of the options shown in the following table,use the cost of underlying share price at expiration along with the other information to determine the amount of profit or loss an investor would have had,ignoring transaction/brokerage costs.

The put-call parity theorem suggests that:

The price of an option is affected by the risk-free interest rate.

The Black-Scholes model of call option pricing is only valid for American type call options.

A _______________ call option can only be exercised on maturity.

If the share price at the expiry of a call option is less than the exercise price,the call is worth:

In most instances an American call option should not be exercised early.

The value of an option in excess of its intrinsic value is known as:

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters

Exam 18: Options and Contingent Claims

The Chicago Board Options Exchange opened in:

A payoff structure resembling that of a short futures position can be created by:

Which of the following statements regarding call options is true?

Ratio of the change in an option price that results from a change in the price of the underlying assets is known as the option's:

Using the Black-Scholes formula,calculate the price of a put option from the following information: exercise price $3.00;current share price $3.30;term to expiry three months;standard deviation 0.30 p.a. ;and risk-free interest rate 10% p.a.continuously compounded.

A call option can have a negative payoff,however the payoff on a put option is always positive.

Calculate the price of a European call option if the price of the equivalent European put option is $5 and the share price,exercise price and risk-free rate (continuously compounded)are $31,$28 and 12% p.a. ,respectively.The options have three months to expiry.

An option creates the obligation for delivery of the underlying asset at a pre-determined point of time in the future.

All things being equal,the more ________________ is the underlying share price,call prices should be higher.

Which of the following is a potential disadvantage of privately negotiated options?

For each of the options shown in the following table,use the cost of underlying share price at expiration along with the other information to determine the amount of profit or loss an investor would have had,ignoring transaction/brokerage costs.

The put-call parity theorem suggests that:

The price of an option is affected by the risk-free interest rate.

The Black-Scholes model of call option pricing is only valid for American type call options.

A _______________ call option can only be exercised on maturity.

If the share price at the expiry of a call option is less than the exercise price,the call is worth:

In most instances an American call option should not be exercised early.

The value of an option in excess of its intrinsic value is known as:

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters