Question 1

Which of the following will NOT increase the value of a put option?

Accepted Answer

A) An increase in the time to maturity 
B) A decrease in the stock price 
C) A decrease in the stock's volatility 
D) An increase in the exercise price 
A) An increase in the time to maturity 
B) A decrease in the stock price 
C) A decrease in the stock's volatility 
D) An increase in the exercise price C

Question 2

Which of the following statements is FALSE?

Accepted Answer

A) Because an American option cannot be worth less than its intrinsic value,it cannot have a negative time value. 
B) An American option with a later exercise date cannot be worth less than an otherwise identical American option with an earlier exercise date. 
C) The value of an option generally decreases with the volatility of the stock. 
D) The intrinsic value is the amount by which the option is currently in-the money or 0 if the option is out-of-the-money. 
A) Because an American option cannot be worth less than its intrinsic value,it cannot have a negative time value. 
B) An American option with a later exercise date cannot be worth less than an otherwise identical American option with an earlier exercise date. 
C) The value of an option generally decreases with the volatility of the stock. 
D) The intrinsic value is the amount by which the option is currently in-the money or 0 if the option is out-of-the-money. C

Question 3

In describing Galt's debt as a put option,the strike price of the put option is:

Accepted Answer

A) $200 million 
B) $300 million 
C) $500 million 
D) $700 million 
A) $200 million 
B) $300 million 
C) $500 million 
D) $700 million A

Question 4

KD Industries stock is currently trading at $32 per share.Consider a put option on KD stock with a strike price of $30.The intrinsic value of this put option is:

Accepted Answer

A) $0 
B) -$2 
C) $2 
D) $30 
A) $0 
B) -$2 
C) $2 
D) $30

Question 5

Use the figure for the question(s)below.  
-This graph depicts the payoffs of:

Accepted Answer

A) a short position in a put option at expiration. 
B) a short position in a call option at expiration. 
C) a long position in a put option at expiration. 
D) a long position in a call option at expiration. 
A) a short position in a put option at expiration. 
B) a short position in a call option at expiration. 
C) a long position in a put option at expiration. 
D) a long position in a call option at expiration.

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) Options also allow investors to speculate,or place a bet on the direction in which they believe the market is likely to move. 
B) Options where the strike price and the stock price are very far apart are referred to as deep in-the-money or deep out of-the-money. 
C) Call options with strike prices above the current stock price are in-the-money,as are put options with strike prices below the current stock price. 
D) European options allow their holders to exercise the option only on the expiration date-holders cannot exercise before the expiration date. 
A) Options also allow investors to speculate,or place a bet on the direction in which they believe the market is likely to move. 
B) Options where the strike price and the stock price are very far apart are referred to as deep in-the-money or deep out of-the-money. 
C) Call options with strike prices above the current stock price are in-the-money,as are put options with strike prices below the current stock price. 
D) European options allow their holders to exercise the option only on the expiration date-holders cannot exercise before the expiration date.

Question 7

Which of the following statements is FALSE?

Accepted Answer

A) The intrinsic value of an option is the value it would have if it expired immediately. 
B) A European option cannot be worth less than its American counterpart. 
C) Put options increase in value as the stock price falls. 
D) A put option cannot be worth more than its strike price. 
A) The intrinsic value of an option is the value it would have if it expired immediately. 
B) A European option cannot be worth less than its American counterpart. 
C) Put options increase in value as the stock price falls. 
D) A put option cannot be worth more than its strike price.

Question 8

An option strategy in which you hold a long position in both a put and a call option with the same strike price is called:

Accepted Answer

A) a strangle. 
B) portfolio insurance. 
C) a butterfly spread. 
D) a straddle. 
A) a strangle. 
B) portfolio insurance. 
C) a butterfly spread. 
D) a straddle.

Question 9

Describe the conditions when it would be optimal to exercise an American Call and an American Put option prior to their expiration.

Accepted Answer

One might guess that the ability to exer

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) The option buyer,also called the option holder,holds the right to exercise the option and has a long position in the contract. 
B) The market price of the option is also called the exercise price. 
C) If the payoff from exercising an option immediately is positive,the option is said to be in-the-money. 
D) As with other financial assets,options can be bought and sold.Standard stock options are traded on organized exchanges,while more specialized options are sold through dealers. 
A) The option buyer,also called the option holder,holds the right to exercise the option and has a long position in the contract. 
B) The market price of the option is also called the exercise price. 
C) If the payoff from exercising an option immediately is positive,the option is said to be in-the-money. 
D) As with other financial assets,options can be bought and sold.Standard stock options are traded on organized exchanges,while more specialized options are sold through dealers.

Question 11

Use the table for the question(s)below.
Consider the following information on options from the CBOE for Merck:  
-You have decided to sell (write)5 January 2009 put options on Merck with an exercise price of $45 per share.How much money will you receive and are these contracts in or out of the money?

Accepted Answer

If you write 5 put option contracts you

Question 12

The open interest for January 2009 put option that is closest to being at-the-money is:

Accepted Answer

A) 7174 
B) 982 
C) 319 
D) 8422 
A) 7174 
B) 982 
C) 319 
D) 8422

Question 13

You are long both a put option and a call option on Rockwood stock with the same expiration date.The exercise price of the call option is $40 and the exercise price of the put option is $30.Graph the payoff of the combination of options at expiration.

Accepted Answer

@#IMG-DLM& This opti

Question 14

Suppose that Nielson Motors stock is trading for $50 per share and that Nielson pays no dividends.What is the maximum possible price for a call option on Nielson Motors?

Accepted Answer

A) $0 
B) $20 
C) $50 
D) infinite 
A) $0 
B) $20 
C) $50 
D) infinite

Question 15

Which of the following best describes Galt's debt using a call option?

Accepted Answer

A) Long $700 million in the firm's assets and Short a call option with a $700 strike price 
B) Short $700 million in the firm's assets and Long a call option with a $700 strike price 
C) Long $700 million in the firm's assets and Short a call option with a $200 strike price 
D) Short $700 million in the firm's assets and Long a call option with a $200 strike price 
A) Long $700 million in the firm's assets and Short a call option with a $700 strike price 
B) Short $700 million in the firm's assets and Long a call option with a $700 strike price 
C) Long $700 million in the firm's assets and Short a call option with a $200 strike price 
D) Short $700 million in the firm's assets and Long a call option with a $200 strike price

Question 16

Using options to reduce risk is called:

Accepted Answer

A) speculation. 
B) a naked position. 
C) hedging. 
D) a covered position. 
A) speculation. 
B) a naked position. 
C) hedging. 
D) a covered position.

Question 17

The writer of a call option has:

Accepted Answer

A) the obligation to sell a security for a given price. 
B) the obligation to buy a security for a given price. 
C) the right to sell a security for a given price. 
D) the right to buy a security for a given price. 
A) the obligation to sell a security for a given price. 
B) the obligation to buy a security for a given price. 
C) the right to sell a security for a given price. 
D) the right to buy a security for a given price.

Question 18

Which of the following best describes Galt's debt using a put option?

Accepted Answer

A) Long $200 million in risk free debt and Short a put option on the firm's assets with a $200 strike price 
B) Short $200 million in risk free debt and Long a put option on the firm's assets with a $200 strike price 
C) Long $200 million in risk free debt and Short a put option on the firm's assets with a $700 strike price 
D) Short $200 million in risk free debt and Long a put option on the firm's assets with a $700 strike price 
A) Long $200 million in risk free debt and Short a put option on the firm's assets with a $200 strike price 
B) Short $200 million in risk free debt and Long a put option on the firm's assets with a $200 strike price 
C) Long $200 million in risk free debt and Short a put option on the firm's assets with a $700 strike price 
D) Short $200 million in risk free debt and Long a put option on the firm's assets with a $700 strike price

Question 19

Which of the following statements is FALSE?

Accepted Answer

A) When a holder of an option enforces the agreement and buys or sells a share of stock at the agreed-upon price,he is exercising the option. 
B) There are two kinds of options.European options allow their holders to exercise the option on any date up to and including a final date called the expiration date. 
C) Because an option is a contract between two parties,for every owner of a financial option,there is also an option writer,the person who takes the other side of the contract. 
D) The price at which the holder buys or sells the share of stock when the option is exercised is called the strike price or exercise price. 
A) When a holder of an option enforces the agreement and buys or sells a share of stock at the agreed-upon price,he is exercising the option. 
B) There are two kinds of options.European options allow their holders to exercise the option on any date up to and including a final date called the expiration date. 
C) Because an option is a contract between two parties,for every owner of a financial option,there is also an option writer,the person who takes the other side of the contract. 
D) The price at which the holder buys or sells the share of stock when the option is exercised is called the strike price or exercise price.

Question 20

Which of the following statements is FALSE?

Accepted Answer

A) A call option gives the owner the right to buy the asset. 
B) A put option gives the owner the right to sell the asset. 
C) A financial option contract gives the writer the right (but not the obligation)to purchase or sell an asset at a fixed price at some future date. 
D) A stock option gives the holder the option to buy or sell a share of stock on or before a given date for a given price. 
A) A call option gives the owner the right to buy the asset. 
B) A put option gives the owner the right to sell the asset. 
C) A financial option contract gives the writer the right (but not the obligation)to purchase or sell an asset at a fixed price at some future date. 
D) A stock option gives the holder the option to buy or sell a share of stock on or before a given date for a given price.

Exam 20: Financial Options

Which of the following will NOT increase the value of a put option?

Which of the following statements is FALSE?

In describing Galt's debt as a put option,the strike price of the put option is:

KD Industries stock is currently trading at $32 per share.Consider a put option on KD stock with a strike price of $30.The intrinsic value of this put option is:

Use the figure for the question(s)below. -This graph depicts the payoffs of:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

An option strategy in which you hold a long position in both a put and a call option with the same strike price is called:

Describe the conditions when it would be optimal to exercise an American Call and an American Put option prior to their expiration.

Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following information on options from the CBOE for Merck: -You have decided to sell (write)5 January 2009 put options on Merck with an exercise price of $45 per share.How much money will you receive and are these contracts in or out of the money?

The open interest for January 2009 put option that is closest to being at-the-money is:

You are long both a put option and a call option on Rockwood stock with the same expiration date.The exercise price of the call option is $40 and the exercise price of the put option is $30.Graph the payoff of the combination of options at expiration.

Suppose that Nielson Motors stock is trading for $50 per share and that Nielson pays no dividends.What is the maximum possible price for a call option on Nielson Motors?

Which of the following best describes Galt's debt using a call option?

Using options to reduce risk is called:

The writer of a call option has:

Which of the following best describes Galt's debt using a put option?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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