Question 1

Consider the following equation: C = S - K + dis(K)+ P - PV(Div)
In this equation,dis(K)+ P - PV(Div)tells us

Accepted Answer

A)  the market value of the option. 
B)  the difference in the price of an American option over a European option because of dividend capture. 
C)  the intrinsic value of the option. 
D)  the time value of the option. 
A)  the market value of the option. 
B)  the difference in the price of an American option over a European option because of dividend capture. 
C)  the intrinsic value of the option. 
D)  the time value of the option.

Question 2

Use the table for the question(s) below.
Consider the following information on options from the CBOE for Merck:  
-How many of the January 2009 put options are in-the-money?

Accepted Answer

A)  1 
B)  3 
C)  2 
D)  4 
A)  1 
B)  3 
C)  2 
D)  4

Question 3

________,options on Canadian stocks and bonds were traded on the Montreal Exchange,which was centre of the Canadian Derivatives Exchange.

Accepted Answer

A)  After 1999 
B)  Before 1973 
C)  After 2008 
D)  Before 2008 
A)  After 1999 
B)  Before 1973 
C)  After 2008 
D)  Before 2008

Question 4

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.

Question 5

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.

Question 6

Which of the following statements is false?

Accepted Answer

A)  Because a short position in an option is the other side of a long position, the profits from a short position in an option are just the negative of the profits of a long position. 
B)  The deeper out-of-the-money the put option is, the less negative its beta, and the higher is its expected return. 
C)  Although payouts on a long position in an option contract are never negative, the profit from purchasing an option and holding it to expiration could well be negative because the payout at expiration might be less than the initial cost of the option. 
D)  The put position has a higher return in states with low stock prices; that is, if the stock has a positive beta, the put has a negative beta. 
A)  Because a short position in an option is the other side of a long position, the profits from a short position in an option are just the negative of the profits of a long position. 
B)  The deeper out-of-the-money the put option is, the less negative its beta, and the higher is its expected return. 
C)  Although payouts on a long position in an option contract are never negative, the profit from purchasing an option and holding it to expiration could well be negative because the payout at expiration might be less than the initial cost of the option. 
D)  The put position has a higher return in states with low stock prices; that is, if the stock has a positive beta, the put has a negative beta.

Question 7

Use the table for the question(s) below.
Consider the following information on options from the CBOE for Merck:  
-How many of the January 2009 call options are in-the-money?

Accepted Answer

A)  2 
B)  4 
C)  1 
D)  3 
A)  2 
B)  4 
C)  1 
D)  3

Question 8

Which of the following statements is false?

Accepted Answer

A)  Options 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 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 9

Which of the following statements is false?

Accepted Answer

A)  A holder would not exercise an in-the-money option. 
B)  The option seller, also called the option writer, sells (or writes) the option and has a short position in the contract. 
C)  Because the long side has the option to exercise, the short side has an obligation to fulfill the contract. 
D)  When the exercise price of an option is equal to the current price of the stock, the option is said to be at-the-money. 
A)  A holder would not exercise an in-the-money option. 
B)  The option seller, also called the option writer, sells (or writes) the option and has a short position in the contract. 
C)  Because the long side has the option to exercise, the short side has an obligation to fulfill the contract. 
D)  When the exercise price of an option is equal to the current price of the stock, the option is said to be at-the-money.

Question 10

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

Accepted Answer

A)  $0 
B)  $32 
C)  $30 
D)  $2 
A)  $0 
B)  $32 
C)  $30 
D)  $2

Question 11

Rose Industries is currently trading for $47 per share.The stock pays no dividends.A one-year European call option on Rose Industries with a strike price of $45 is currently trading for $7.45.If the risk-free interest rate is 6% per year,then calculate the price of a one-year European put option on Rose Industries with a strike price of $45.

Accepted Answer

C = P + S - PV(K)- P

Question 12

Use the table for the question(s) below.
Consider the following information on options from the CBOE for Merck:  
-Assume you want to buy one option contract with an exercise price closest to being at-the-money and that expires January 2009.The current price that you would have to pay for such a contract is:

Accepted Answer

A)  $680 
B)  $380 
C)  $650 
D)  $420 
A)  $680 
B)  $380 
C)  $650 
D)  $420

Question 13

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

Question 14

American options allow their holders to exercise the option ________.European options allow their holders to exercise the option ________.

Accepted Answer

A)  only on the expiration date; on any date up to and including a final date 
B)  on any date up to but not including expiration date; on any date up to and including a final date 
C)  on any date up to and including a final date; only on the expiration date 
D)  on any date before the expiration date; on any date including the expiration date 
A)  only on the expiration date; on any date up to and including a final date 
B)  on any date up to but not including expiration date; on any date up to and including a final date 
C)  on any date up to and including a final date; only on the expiration date 
D)  on any date before the expiration date; on any date including the expiration date

Question 15

Using options to place a bet on the direction in which you believe the market is likely to move is called

Accepted Answer

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

Question 16

The holder of a put option has

Accepted Answer

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

Question 17

Graph the payoff at expiration of a short position in a put option with a strike price of $20.

Accepted Answer

The answer of Graph the payoff at expiration of a...

Question 18

Which of the following statements is false?

Accepted Answer

A)  An American call on a non-dividend-paying stock has the same price as its European counterpart. 
B)  The price of any call option on a non-dividend-paying stock always exceeds its intrinsic value. 
C)  It is never optimal to exercise a call option on a dividend-paying stock early - you are always better off just selling the option. 
D)  If the present value of the dividend payment is large enough, the time value of a European call option can be negative, implying that its price could be less than its intrinsic value. 
A)  An American call on a non-dividend-paying stock has the same price as its European counterpart. 
B)  The price of any call option on a non-dividend-paying stock always exceeds its intrinsic value. 
C)  It is never optimal to exercise a call option on a dividend-paying stock early - you are always better off just selling the option. 
D)  If the present value of the dividend payment is large enough, the time value of a European call option can be negative, implying that its price could be less than its intrinsic value.

Question 19

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 20

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.

Exam 14: Financial Options

Consider the following equation: C = S - K + dis(K)+ P - PV(Div) In this equation,dis(K)+ P - PV(Div)tells us

Use the table for the question(s) below. Consider the following information on options from the CBOE for Merck: -How many of the January 2009 put options are in-the-money?

________,options on Canadian stocks and bonds were traded on the Montreal Exchange,which was centre of the Canadian Derivatives Exchange.

Which of the following statements is false?

Which of the following statements is false?

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: -How many of the January 2009 call options are in-the-money?

Which of the following statements is false?

Which of the following statements is false?

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

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

American options allow their holders to exercise the option ________.European options allow their holders to exercise the option ________.

Using options to place a bet on the direction in which you believe the market is likely to move is called

The holder of a put option has

Graph the payoff at expiration of a short position in a put option with a strike price of $20.

Which of the following statements is false?

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:

Using options to reduce risk is called

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Option Valuation

Real Options

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 Modelling: a Case Study

The Mechanics of Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

American options allow their holders to exercise the option .European options allow their holders to exercise the option .