Question 1

The price of any call option on a ________ stock is always ________ its intrinsic value.

Accepted Answer

A)  non-dividend-paying; greater than 
B)  non-dividend-paying; equal to 
C)  non-dividend-paying; smaller than 
D)  dividend-paying; greater than 
A)  non-dividend-paying; greater than 
B)  non-dividend-paying; equal to 
C)  non-dividend-paying; smaller than 
D)  dividend-paying; greater than

Question 2

The Law of One Price requires that ________ must have the same price.

Accepted Answer

A)  the stock and a put or a bond and a call 
B)  the stock and a call or a bond and a put 
C)  the bond and a put or a stock and a put 
D)  the bond and a call or a stock and a call 
A)  the stock and a put or a bond and a call 
B)  the stock and a call or a bond and a put 
C)  the bond and a put or a stock and a put 
D)  the bond and a call or a stock and a call

Question 3

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

Accepted Answer

A)  the market value of the option. 
B)  the time value of the option. 
C)  the option spread. 
D)  the intrinsic value of the option. 
A)  the market value of the option. 
B)  the time value of the option. 
C)  the option spread. 
D)  the intrinsic value of the option.

Question 4

You pay $3.25 for a call option on Luther Industries that expires in three months with a strike price of $40.00.Three months later,at expiration,Luther Industries is trading at $41.00 per share.Your profit per share on this transaction is closest to?

Accepted Answer

A)  -$1.00 
B)  $1.00 
C)  -$2.25 
D)  $2.25 
A)  -$1.00 
B)  $1.00 
C)  -$2.25 
D)  $2.25

Question 5

The payoff to the holder of a call option is given by:

Accepted Answer

A)  C = max(S - K, 0) 
B)  C = min(K, 0) 
C)  C = max(K - S, 0) 
D)  C = min(K - S, 0) 
A)  C = max(S - K, 0) 
B)  C = min(K, 0) 
C)  C = max(K - S, 0) 
D)  C = min(K - S, 0)

Question 6

The intrinsic value is the amount by which the option is currently ________,or 0 if the option is ________.

Accepted Answer

A)  out-of-the-money; in-the-money 
B)  in-the-money; out-of-the-money 
C)  deep in-the-money; out-of-the-money 
D)  in-the-money; deep out-of-the-money 
A)  out-of-the-money; in-the-money 
B)  in-the-money; out-of-the-money 
C)  deep in-the-money; out-of-the-money 
D)  in-the-money; deep out-of-the-money

Question 7

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 8

Which of the following statements is false?

Accepted Answer

A)  The option price is more sensitive to changes in volatility for at-the-money options than it is for in-the-money options. 
B)  A share of stock can be thought of as a put option on the assets of the firm with a strike price equal to the value of debt outstanding. 
C)  In the context of corporate finance, equity is at-the-money when a firm is close to bankruptcy. 
D)  Because the price of equity is increasing with the volatility of the firm's assets, equity holders benefit from a zero-NPV project that increases the volatility of the firm's assets. 
A)  The option price is more sensitive to changes in volatility for at-the-money options than it is for in-the-money options. 
B)  A share of stock can be thought of as a put option on the assets of the firm with a strike price equal to the value of debt outstanding. 
C)  In the context of corporate finance, equity is at-the-money when a firm is close to bankruptcy. 
D)  Because the price of equity is increasing with the volatility of the firm's assets, equity holders benefit from a zero-NPV project that increases the volatility of the firm's assets.

Question 9

You have decided to buy 10 January 2009 call options on Merck with an exercise price of $45 per share.How much will this transaction cost you and are these contracts in- or out-of-the-money?

Accepted Answer

If you buy 10 call option contracts you

Question 10

Which of the following statements is false?

Accepted Answer

A)  Put-call parity gives the price of a European call option in terms of the price of a European put, the underlying stock, and a zero-coupon bond. 
B)  For a given strike price, the value of a call option is higher if the current price of the stock is higher, as there is a greater likelihood the option will end up in-the-money. 
C)  The value of an otherwise identical call option is higher if the strike price the holder must pay to buy the stock is higher. 
D)  Because a put is the right to sell the stock, puts with a lower strike price are less valuable. 
A)  Put-call parity gives the price of a European call option in terms of the price of a European put, the underlying stock, and a zero-coupon bond. 
B)  For a given strike price, the value of a call option is higher if the current price of the stock is higher, as there is a greater likelihood the option will end up in-the-money. 
C)  The value of an otherwise identical call option is higher if the strike price the holder must pay to buy the stock is higher. 
D)  Because a put is the right to sell the stock, puts with a lower strike price are less valuable.

Question 11

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

Accepted Answer

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

Question 12

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)  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)  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 13

Which of the following statements is false?

Accepted Answer

A)  If the value of the firm's assets exceeds the required debt payment, debt holders are fully repaid. 
B)  Another way to view corporate debt is as a portfolio of riskless debt and a short position in a call option on the firm's assets with a strike price equal to the required debt payment. 
C)  Viewing debt as an option portfolio is useful as it provides insight into how credit spreads for risky debt are determined. 
D)  You can think of the debt holders as owning the firm and having sold a call option with a strike price equal to the required debt payment. 
A)  If the value of the firm's assets exceeds the required debt payment, debt holders are fully repaid. 
B)  Another way to view corporate debt is as a portfolio of riskless debt and a short position in a call option on the firm's assets with a strike price equal to the required debt payment. 
C)  Viewing debt as an option portfolio is useful as it provides insight into how credit spreads for risky debt are determined. 
D)  You can think of the debt holders as owning the firm and having sold a call option with a strike price equal to the required debt payment.

Question 14

Montreal offers options on ________ that track the S&P TSX 60 and ________.

Accepted Answer

A)  five industry sectors; exchange-traded funds (iShares) 
B)  exchange-traded funds (iShares); financial industry sector 
C)  exchange-traded funds (iShares); five industry sectors 
D)  financial industry sectors; exchange-traded funds (iShares) 
A)  five industry sectors; exchange-traded funds (iShares) 
B)  exchange-traded funds (iShares); financial industry sector 
C)  exchange-traded funds (iShares); five industry sectors 
D)  financial industry sectors; exchange-traded funds (iShares)

Question 15

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 16

Montreal offers options on futures of ________ and 10-year ________.

Accepted Answer

A)  three-month Bankers' Acceptances; Government of Canada Bonds 
B)  three-month Bankers' Acceptances; Canada Saving Bonds 
C)  three-month T-bills; Canada Saving Bonds 
D)  three-month T-bills; Government of Canada Bonds 
A)  three-month Bankers' Acceptances; Government of Canada Bonds 
B)  three-month Bankers' Acceptances; Canada Saving Bonds 
C)  three-month T-bills; Canada Saving Bonds 
D)  three-month T-bills; Government of Canada Bonds

Exam 14: Financial Options

The price of any call option on a ________ stock is always ________ its intrinsic value.

The Law of One Price requires that ________ must have the same price.

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

You pay $3.25 for a call option on Luther Industries that expires in three months with a strike price of $40.00.Three months later,at expiration,Luther Industries is trading at $41.00 per share.Your profit per share on this transaction is closest to?

The payoff to the holder of a call option is given by:

The intrinsic value is the amount by which the option is currently ________,or 0 if the option 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.

Which of the following statements is false?

You have decided to buy 10 January 2009 call options on Merck with an exercise price of $45 per share.How much will this transaction cost you and are these contracts in- or out-of-the-money?

Which of the following statements is false?

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?

Montreal offers options on ________ that track the S&P TSX 60 and ________.

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

Montreal offers options on futures of ________ and 10-year ________.

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

The price of any call option on a stock is always its intrinsic value.

The intrinsic value is the amount by which the option is currently ,or 0 if the option is .

Montreal offers options on that track the S&P TSX 60 and .

Montreal offers options on futures of and 10-year .