Question 1

Jasmine purchased one call option with a strike price of $35 when the call premium was $1.10.What is the break-even stock price?

Accepted Answer

A) $.00 
B) $33.90 
C) $34.45 
D) $35.00 
E) $36.10 
A) $.00 
B) $33.90 
C) $34.45 
D) $35.00 
E) $36.10 E

Question 2

By definition,a put option grants its owner which one of the following?

Accepted Answer

A) right to buy 
B) obligation to buy 
C) right to sell 
D) obligation to sell 
E) choice to either buy or sell 
A) right to buy 
B) obligation to buy 
C) right to sell 
D) obligation to sell 
E) choice to either buy or sell C

Question 3

Which of the following issue exchange-listed option contracts?
I.CBOE
II.SEC
III.OCC
IV.NASDAQ

Accepted Answer

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

Question 4

A cash-settled option is defined as an option which does which one of the following?

Accepted Answer

A) requires a cash deposit upon purchase 
B) has a foreign currency as its underlying asset 
C) has the U.S. dollar at its underlying asset 
D) entails a cash payment to the holder upon exercise 
E) offers the option to either deliver the underlying asset or a cash payment 
A) requires a cash deposit upon purchase 
B) has a foreign currency as its underlying asset 
C) has the U.S. dollar at its underlying asset 
D) entails a cash payment to the holder upon exercise 
E) offers the option to either deliver the underlying asset or a cash payment

Question 5

You bought a call option with a strike price of $35.What is your total payoff on this option contract if the underlying stock is selling for $36.70 on the option expiration date?

Accepted Answer

A) $.00 
B) $30.00 
C) $33.00 
D) $133.00 
E) $170.00 
A) $.00 
B) $30.00 
C) $33.00 
D) $133.00 
E) $170.00

Question 6

The maximum option payoff from:

Accepted Answer

A) writing a put is $0. 
B) buying a put is $0. 
C) writing a call is an unlimited profit. 
D) buying a call is the strike price. 
E) writing a call is the stock price. 
A) writing a put is $0. 
B) buying a put is $0. 
C) writing a call is an unlimited profit. 
D) buying a call is the strike price. 
E) writing a call is the stock price.

Question 7

Which one of the following options is out-of-the-money?

Accepted Answer

A) call with a $20 strike and a stock price of $21 
B) put with a $35 strike and a stock price of $33 
C) call with a $45 strike and stock price of $46 
D) put with a $75 strike and a stock price of $70 
E) call with a $50 strike and a stock price of $49 
A) call with a $20 strike and a stock price of $21 
B) put with a $35 strike and a stock price of $33 
C) call with a $45 strike and stock price of $46 
D) put with a $75 strike and a stock price of $70 
E) call with a $50 strike and a stock price of $49

Question 8

You wrote a $40 call option on a stock that has a market price of $43.Which one of the following statements must be correct if the option expires three months from now?

Accepted Answer

A) Your option currently has zero intrinsic value. 
B) Your option currently has a negative payoff. 
C) You have the right to purchase shares at $40 a share. 
D) Your option payoff will increase if the market price of the stock increases. 
E) If the market price remains stable, you will make the decision to exercise this option prior to expiration. 
A) Your option currently has zero intrinsic value. 
B) Your option currently has a negative payoff. 
C) You have the right to purchase shares at $40 a share. 
D) Your option payoff will increase if the market price of the stock increases. 
E) If the market price remains stable, you will make the decision to exercise this option prior to expiration.

Question 9

A call option has a premium of $0.60,a strike price of $40,and 3 months to expiration.The current stock price is $39.60.The stock will pay a $0.80 dividend two months from now.The risk-free rate is 3 percent.What is the premium on a 3-month put with a strike price of $40? Assume the options are European style.

Accepted Answer

A) $0.25 
B) $0.51 
C) $0.78 
D) $1.23 
E) $1.50 
A) $0.25 
B) $0.51 
C) $0.78 
D) $1.23 
E) $1.50

Question 10

Courtney purchased 5 call options with a $47.50 strike price and a call premium of $1.10.On the expiration date,the underlying stock was priced at $50.60 per share.What is her percentage return on this investment?

Accepted Answer

A) -100 percent 
B) 70.45 percent 
C) 181.82 percent 
D) 267.38 percent 
E) 909.10 percent 
A) -100 percent 
B) 70.45 percent 
C) 181.82 percent 
D) 267.38 percent 
E) 909.10 percent

Question 11

How much will it cost to purchase 5 May $27.50 calls on Texas Instruments?

Accepted Answer

A) $21 
B) $1,215 
C) $1,245 
D) $1,720 
E) $2,075 
A) $21 
B) $1,215 
C) $1,245 
D) $1,720 
E) $2,075

Question 12

Which one of the following is the upper price bound for the intrinsic value of a European call option on a stock?

Accepted Answer

A) $0 
B) strike price 
C) stock price 
D) Max (S - K, 0) 
E) Max (K - S, 0) 
A) $0 
B) strike price 
C) stock price 
D) Max (S - K, 0) 
E) Max (K - S, 0)

Question 13

The value of an option is dependent upon the value of the underlying security.This relationship defines an option as which one of the following?

Accepted Answer

A) equity security 
B) fixed income security 
C) derivative security 
D) transfer security 
E) dependent security 
A) equity security 
B) fixed income security 
C) derivative security 
D) transfer security 
E) dependent security

Question 14

Which one of the following applies to a naked call?

Accepted Answer

A) unlimited potential profits 
B) unlimited potential losses 
C) sale of a put on a stock you do not own 
D) sale of a call on a stock you currently own 
E) purchase of a call on a stock you do not own 
A) unlimited potential profits 
B) unlimited potential losses 
C) sale of a put on a stock you do not own 
D) sale of a call on a stock you currently own 
E) purchase of a call on a stock you do not own

Question 15

A call option has a premium of $2.80,a strike price of $55,and 3 months to expiration.The current stock price is $52.20.The stock will pay a $1.25 dividend in one month.The risk-free rate is 2.5 percent.What is the premium on a 3-month put with a strike price of $55? Assume the options are European style.

Accepted Answer

A) $2.08 
B) $2.15 
C) $3.32 
D) $4.12 
E) $6.51 
A) $2.08 
B) $2.15 
C) $3.32 
D) $4.12 
E) $6.51

Question 16

Which of the following has the obligation to purchase stock at the strike price when an option is exercised?

Accepted Answer

A) call holder 
B) call writer 
C) put holder 
D) put writer 
E) call writer and put holder 
A) call holder 
B) call writer 
C) put holder 
D) put writer 
E) call writer and put holder

Question 17

A 6-month put has a strike price of $32.50.The underlying stock's price is $31.10.What is intrinsic value of this put?

Accepted Answer

A) $0.00 
B) $0.70 
C) $1.40 
D) $2.10 
E) $2.80 
A) $0.00 
B) $0.70 
C) $1.40 
D) $2.10 
E) $2.80

Question 18

The maximum:

Accepted Answer

A) profit from buying a put is the stock price. 
B) loss from writing a put is the option premium. 
C) profit from writing a call is the strike price. 
D) loss from buying a call is $0. 
E) profit from writing a put is the option premium. 
A) profit from buying a put is the stock price. 
B) loss from writing a put is the option premium. 
C) profit from writing a call is the strike price. 
D) loss from buying a call is $0. 
E) profit from writing a put is the option premium.

Question 19

Which one of the following terms is defined as the payoff that would be received if an option were expiring immediately?

Accepted Answer

A) parity price 
B) market price 
C) time value 
D) underlying value 
E) intrinsic value 
A) parity price 
B) market price 
C) time value 
D) underlying value 
E) intrinsic value

Question 20

Louise just purchased 3 call option contracts on GE stock.How many shares of stock can she buy at the strike price based on these contracts?

Accepted Answer

A) 3 
B) 30 
C) 300 
D) 30,000 
E) 300,000 
A) 3 
B) 30 
C) 300 
D) 30,000 
E) 300,000

Jasmine purchased one call option with a strike price of $35 when the call premium was $1.10.What is the break-even stock price?

By definition,a put option grants its owner which one of the following?

Which of the following issue exchange-listed option contracts? I.CBOE II.SEC III.OCC IV.NASDAQ

A cash-settled option is defined as an option which does which one of the following?

You bought a call option with a strike price of $35.What is your total payoff on this option contract if the underlying stock is selling for $36.70 on the option expiration date?

The maximum option payoff from:

Which one of the following options is out-of-the-money?

You wrote a $40 call option on a stock that has a market price of $43.Which one of the following statements must be correct if the option expires three months from now?

Courtney purchased 5 call options with a $47.50 strike price and a call premium of $1.10.On the expiration date,the underlying stock was priced at $50.60 per share.What is her percentage return on this investment?

How much will it cost to purchase 5 May $27.50 calls on Texas Instruments?

Which one of the following is the upper price bound for the intrinsic value of a European call option on a stock?

The value of an option is dependent upon the value of the underlying security.This relationship defines an option as which one of the following?

Which one of the following applies to a naked call?

Which of the following has the obligation to purchase stock at the strike price when an option is exercised?

A 6-month put has a strike price of $32.50.The underlying stock's price is $31.10.What is intrinsic value of this put?

The maximum:

Which one of the following terms is defined as the payoff that would be received if an option were expiring immediately?

Louise just purchased 3 call option contracts on GE stock.How many shares of stock can she buy at the strike price based on these contracts?

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

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

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Exam 15: Stock Options

Jasmine purchased one call option with a strike price of $35 when the call premium was $1.10.What is the break-even stock price?

By definition,a put option grants its owner which one of the following?

Which of the following issue exchange-listed option contracts? I.CBOE II.SEC III.OCC IV.NASDAQ

A cash-settled option is defined as an option which does which one of the following?

You bought a call option with a strike price of $35.What is your total payoff on this option contract if the underlying stock is selling for $36.70 on the option expiration date?

The maximum option payoff from:

Which one of the following options is out-of-the-money?

You wrote a $40 call option on a stock that has a market price of $43.Which one of the following statements must be correct if the option expires three months from now?

Courtney purchased 5 call options with a $47.50 strike price and a call premium of $1.10.On the expiration date,the underlying stock was priced at $50.60 per share.What is her percentage return on this investment?

How much will it cost to purchase 5 May $27.50 calls on Texas Instruments?

Which one of the following is the upper price bound for the intrinsic value of a European call option on a stock?

The value of an option is dependent upon the value of the underlying security.This relationship defines an option as which one of the following?

Which one of the following applies to a naked call?

Which of the following has the obligation to purchase stock at the strike price when an option is exercised?

A 6-month put has a strike price of $32.50.The underlying stock's price is $31.10.What is intrinsic value of this put?

The maximum:

Which one of the following terms is defined as the payoff that would be received if an option were expiring immediately?

Louise just purchased 3 call option contracts on GE stock.How many shares of stock can she buy at the strike price based on these contracts?

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

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters