Question 1

If the company unexpectedly announces it will pay its first-ever dividend 4 months from today,you would expect that Refer To:
21-82

Accepted Answer

A) the call price would increase. 
B) the call price would decrease. 
C) the call price would not change. 
D) the put price would decrease. 
E) the put price would not change. 
A) the call price would increase. 
B) the call price would decrease. 
C) the call price would not change. 
D) the put price would decrease. 
E) the put price would not change. B

Question 2

A portfolio consists of 400 shares of stock and 200 calls on that stock.If the hedge ratio for the call is 0.6,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Accepted Answer

A) +$700 
B) +$500 
C) -$580 
D) -$520 
E) none of the above 
A) +$700 
B) +$500 
C) -$580 
D) -$520 
E) none of the above D

Question 3

At expiration,the time value of an at the money put option is always

Accepted Answer

A) equal to zero. 
B) equal to the stock price minus the exercise price. 
C) negative. 
D) positive. 
E) none of the above. 
A) equal to zero. 
B) equal to the stock price minus the exercise price. 
C) negative. 
D) positive. 
E) none of the above. A

Question 4

Vega is defined as

Accepted Answer

A) the change in the value of an option for a dollar change in the price of the underlying asset. 
B) the change in the value of the underlying asset for a dollar change in the call price. 
C) the percentage change in the value of an option for a one percent change in the value of the underlying asset. 
D) the change in the volatility of the underlying stock price. 
E) the sensitivity of an option's price to changes in volatility. 
A) the change in the value of an option for a dollar change in the price of the underlying asset. 
B) the change in the value of the underlying asset for a dollar change in the call price. 
C) the percentage change in the value of an option for a one percent change in the value of the underlying asset. 
D) the change in the volatility of the underlying stock price. 
E) the sensitivity of an option's price to changes in volatility.

Question 5

The hedge ratio of an option is also called the options _______.

Accepted Answer

A) alpha 
B) beta 
C) sigma 
D) delta 
E) rho 
A) alpha 
B) beta 
C) sigma 
D) delta 
E) rho

Question 6

If the stock price increases,the price of a put option on that stock __________ and that of a call option __________.

Accepted Answer

A) decreases, increases 
B) decreases, decreases 
C) increases, decreases 
D) increases, increases 
E) does not change,does not change 
A) decreases, increases 
B) decreases, decreases 
C) increases, decreases 
D) increases, increases 
E) does not change,does not change

Question 7

Which of the variables affecting option pricing is not directly observable?
 If this variable is estimated to be higher or lower than the variable actually is how is the option valuation affected?

Accepted Answer

The volatility of the underlying stock i

Question 8

Which of the inputs in the Black-Scholes Option Pricing Model are directly observable

Accepted Answer

A) the price of the underlying security. 
B) the risk free rate of interest. 
C) the time to expiration. 
D) the variance of returns of the underlying asset return. 
E) A,B,and C 
A) the price of the underlying security. 
B) the risk free rate of interest. 
C) the time to expiration. 
D) the variance of returns of the underlying asset return. 
E) A,B,and C

Question 9

What is the intrinsic value of the call?
Refer To:
21-82

Accepted Answer

A) $12 
B) $10 
C) $8 
D) $23 
E) none of the above. 
A) $12 
B) $10 
C) $8 
D) $23 
E) none of the above.

Question 10

A one dollar decrease in a call option's exercise price would result in a(n)__________ in the call option's value of __________ one dollar.

Accepted Answer

A) increase, more than 
B) decrease, more than 
C) decrease, less than 
D) increase, less than 
E) increase,exactly 
A) increase, more than 
B) decrease, more than 
C) decrease, less than 
D) increase, less than 
E) increase,exactly

Question 11

Relative to European puts,otherwise identical American put options

Accepted Answer

A) are less valuable. 
B) are more valuable. 
C) are equal in value. 
D) will always be exercised earlier. 
E) none of the above. 
A) are less valuable. 
B) are more valuable. 
C) are equal in value. 
D) will always be exercised earlier. 
E) none of the above.

Question 12

The intrinsic value of an in-the-money put option is equal to

Accepted Answer

A) the stock price minus the exercise price. 
B) the put premium. 
C) zero. 
D) the exercise price minus the stock price. 
E) none of the above. 
A) the stock price minus the exercise price. 
B) the put premium. 
C) zero. 
D) the exercise price minus the stock price. 
E) none of the above.

Question 13

Empirical tests of the Black-Scholes option pricing model

Accepted Answer

A) show that the model generates values fairly close to the prices at which options trade. 
B) show that the model tends to overvalue deep in the money calls and undervalue deep out of the money calls. 
C) indicate that the mispricing that does occur is due to the possible early exercise of American options on dividend-paying stocks. 
D) A and C. 
E) A,B,and C. 
A) show that the model generates values fairly close to the prices at which options trade. 
B) show that the model tends to overvalue deep in the money calls and undervalue deep out of the money calls. 
C) indicate that the mispricing that does occur is due to the possible early exercise of American options on dividend-paying stocks. 
D) A and C. 
E) A,B,and C.

Question 14

Other things equal,the price of a stock call option is negatively correlated with the following factors

Accepted Answer

A) the stock price. 
B) the time to expiration. 
C) the stock volatility. 
D) the exercise price. 
E) A,B,and C. 
A) the stock price. 
B) the time to expiration. 
C) the stock volatility. 
D) the exercise price. 
E) A,B,and C.

Question 15

If the company unexpectedly announces it will pay its first-ever dividend 3 months from today,you would expect that

Accepted Answer

A) the call price would increase. 
B) the call price would decrease. 
C) the call price would not change. 
D) the put price would decrease. 
E) the put price would not change. 
A) the call price would increase. 
B) the call price would decrease. 
C) the call price would not change. 
D) the put price would decrease. 
E) the put price would not change.

Question 16

Before expiration,the time value of an at the money call option is always

Accepted Answer

A) positive. 
B) equal to zero. 
C) negative. 
D) equal to the stock price minus the exercise price. 
E) none of the above. 
A) positive. 
B) equal to zero. 
C) negative. 
D) equal to the stock price minus the exercise price. 
E) none of the above.

Question 17

A portfolio consists of 100 shares of stock and 1500 calls on that stock.If the hedge ratio for the call is 0.7,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Accepted Answer

A) +$700 
B) +$500 
C) -$1,150 
D) -$520 
E) none of the above 
A) +$700 
B) +$500 
C) -$1,150 
D) -$520 
E) none of the above

Question 18

Discuss the relationship between option prices and time to expiration,volatility of the underlying stocks,and the exercise price.

Accepted Answer

The longer the time to expiration, the h

Question 19

Portfolio A consists of 150 shares of stock and 300 calls on that stock.Portfolio B consists of 575 shares of stock.The call delta is 0.7.Which portfolio has a higher dollar exposure to a change in stock price?

Accepted Answer

A) Portfolio B. 
B) Portfolio A. 
C) The two portfolios have the same exposure. 
D) A if the stock price increases and B if it decreases. 
E) B if the stock price decreases and A if it increases. 
A) Portfolio B. 
B) Portfolio A. 
C) The two portfolios have the same exposure. 
D) A if the stock price increases and B if it decreases. 
E) B if the stock price decreases and A if it increases.

Question 20

Other things equal,the price of a stock put option is negatively correlated with the following factors

Accepted Answer

A) the stock price. 
B) the time to expiration. 
C) the stock volatility. 
D) the exercise price. 
E) B,C,and D. 
A) the stock price. 
B) the time to expiration. 
C) the stock volatility. 
D) the exercise price. 
E) B,C,and D.

Exam 21: Macroeconomic and Industry Analysis

If the company unexpectedly announces it will pay its first-ever dividend 4 months from today,you would expect that Refer To: 21-82

A portfolio consists of 400 shares of stock and 200 calls on that stock.If the hedge ratio for the call is 0.6,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

At expiration,the time value of an at the money put option is always

Vega is defined as

The hedge ratio of an option is also called the options _______.

If the stock price increases,the price of a put option on that stock __________ and that of a call option __________.

Which of the variables affecting option pricing is not directly observable? If this variable is estimated to be higher or lower than the variable actually is how is the option valuation affected?

Which of the inputs in the Black-Scholes Option Pricing Model are directly observable

What is the intrinsic value of the call? Refer To: 21-82

A one dollar decrease in a call option's exercise price would result in a(n)__________ in the call option's value of __________ one dollar.

Relative to European puts,otherwise identical American put options

The intrinsic value of an in-the-money put option is equal to

Empirical tests of the Black-Scholes option pricing model

Other things equal,the price of a stock call option is negatively correlated with the following factors

If the company unexpectedly announces it will pay its first-ever dividend 3 months from today,you would expect that

Before expiration,the time value of an at the money call option is always

A portfolio consists of 100 shares of stock and 1500 calls on that stock.If the hedge ratio for the call is 0.7,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Discuss the relationship between option prices and time to expiration,volatility of the underlying stocks,and the exercise price.

Portfolio A consists of 150 shares of stock and 300 calls on that stock.Portfolio B consists of 575 shares of stock.The call delta is 0.7.Which portfolio has a higher dollar exposure to a change in stock price?

Other things equal,the price of a stock put option is negatively correlated with the following factors

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and 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

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

If the stock price increases,the price of a put option on that stock and that of a call option .

A one dollar decrease in a call option's exercise price would result in a(n) in the call option's value of one dollar.