Question 1

When issued most convertible bonds are issued _____________.

Accepted Answer

A)  deep in the money 
B)  deep out of the money 
C)  slightly out of the money 
D)  slightly in the money 
A)  deep in the money 
B)  deep out of the money 
C)  slightly out of the money 
D)  slightly in the money

Question 2

If you combine a long stock position with selling an at the money call option the resulting net payoff profile will resemble the payoff profile of a _______.

Accepted Answer

A)  long call 
B)  short call 
C)  short put 
D)  long put 
A)  long call 
B)  short call 
C)  short put 
D)  long put

Question 3

A writer of a call option will want the value of the underlying asset to __________ and a buyer of a put option will want the value of the underlying asset to _________.

Accepted Answer

A)  decrease, decrease 
B)  decrease, increase 
C)  increase, decrease 
D)  increase, increase 
A)  decrease, decrease 
B)  decrease, increase 
C)  increase, decrease 
D)  increase, increase

Question 4

Each listed stock option contract gives the holder the right to buy or sell __________ shares of stock.

Accepted Answer

A)  1 
B)  10 
C)  100 
D)  1,000 
A)  1 
B)  10 
C)  100 
D)  1,000

Question 5

You purchase one IBM July 125 call contract for a premium of $5.You hold the option until the expiration date when IBM stock sells for $123 per share.You will realize a ______ on the investment.

Accepted Answer

A)  $200 profit 
B)  $200 loss 
C)  $500 profit 
D)  $500 loss 
A)  $200 profit 
B)  $200 loss 
C)  $500 profit 
D)  $500 loss

Question 6

What combination of puts and calls can simulate a long stock investment?

Accepted Answer

A)  Long call and short put 
B)  Long call and long put 
C)  Short call and short put 
D)  Short call and long put 
A)  Long call and short put 
B)  Long call and long put 
C)  Short call and short put 
D)  Short call and long put

Question 7

Buyers of listed options __________ required to post margins and writers of naked listed options __________ required to post margins.

Accepted Answer

A)  are; are not 
B)  are; are 
C)  are not; are 
D)  are not; are not 
A)  are; are not 
B)  are; are 
C)  are not; are 
D)  are not; are not

Question 8

A futures call option provides its holder with the right to ___________.

Accepted Answer

A)  purchase a particular stock at some time in the future at a specified price 
B)  purchase a futures contract for the delivery of options on a particular stock 
C)  purchase a futures contract at a specified price for a specified period of time 
D)  deliver a futures contract and receive a specified price at a specific date in the future 
A)  purchase a particular stock at some time in the future at a specified price 
B)  purchase a futures contract for the delivery of options on a particular stock 
C)  purchase a futures contract at a specified price for a specified period of time 
D)  deliver a futures contract and receive a specified price at a specific date in the future

Question 9

An Asian put option gives its holder the right to ____________.

Accepted Answer

A)  buy the underlying asset at the exercise price on or before the expiration date 
B)  buy the underlying asset at a price determined by the average stock price during some specified portion of the option's life 
C)  sell the underlying asset at the exercise price on or before the expiration date 
D)  sell the underlying asset at a price determined by the average stock price during some specified portion of the option's life 
A)  buy the underlying asset at the exercise price on or before the expiration date 
B)  buy the underlying asset at a price determined by the average stock price during some specified portion of the option's life 
C)  sell the underlying asset at the exercise price on or before the expiration date 
D)  sell the underlying asset at a price determined by the average stock price during some specified portion of the option's life

Question 10

What strategy is designed to ensure a value within the bounds of two different stock prices?

Accepted Answer

A)  Collar 
B)  Covered Call 
C)  Protective put 
D)  Straddle 
A)  Collar 
B)  Covered Call 
C)  Protective put 
D)  Straddle

Question 11

You purchase one IBM July 90 call contract for a premium of $4.The stock has a 2 for 1 split prior to the expiration date.You hold the option until the expiration date when IBM stock sells for $48 per share.You will realize a ______ on the investment.

Accepted Answer

A)  $300 profit 
B)  $100 loss 
C)  $400 loss 
D)  $200 profit 
A)  $300 profit 
B)  $100 loss 
C)  $400 loss 
D)  $200 profit

Question 12

You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes:  
-To establish a bull money spread with calls you would _______________.

Accepted Answer

A)  buy the 55 call and sell the 45 call 
B)  buy the 45 call and buy the 55 call 
C)  buy the 45 call and sell the 55 call 
D)  sell the 45 call and sell the 55 call 
A)  buy the 55 call and sell the 45 call 
B)  buy the 45 call and buy the 55 call 
C)  buy the 45 call and sell the 55 call 
D)  sell the 45 call and sell the 55 call

Question 13

The initial maturities of most exchange traded options are generally __________.

Accepted Answer

A)  less than a year 
B)  less than 2 years 
C)  between 1 and 2 years 
D)  between 1 and 3 years 
A)  less than a year 
B)  less than 2 years 
C)  between 1 and 2 years 
D)  between 1 and 3 years

Question 14

You purchase a call option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,ST is the stock price at contract expiration and C0 is the original purchase price of the option.

Accepted Answer

A)  Max(-C0, ST - X - C0) 
B)  Min(-C0, ST - X - C0) 
C)  Max(C0, ST - X + C0) 
D)  Max(0, ST - X - C0) 
A)  Max(-C0, ST - X - C0) 
B)  Min(-C0, ST - X - C0) 
C)  Max(C0, ST - X + C0) 
D)  Max(0, ST - X - C0)

Question 15

The writer of a put option _______________.

Accepted Answer

A)  agrees to sell shares at a set price if the option holder desires 
B)  agrees to buy shares at a set price if the option holder desires 
C)  has the right to buy shares at a set price 
D)  has the right to sell shares at a set price 
A)  agrees to sell shares at a set price if the option holder desires 
B)  agrees to buy shares at a set price if the option holder desires 
C)  has the right to buy shares at a set price 
D)  has the right to sell shares at a set price

Question 16

All else the same,an ______ style option will be ______ valuable than a ______ style option.

Accepted Answer

A)  American, more, European 
B)  American, less, European 
C)  American, more, Canadian 
D)  American, less, Canadian 
A)  American, more, European 
B)  American, less, European 
C)  American, more, Canadian 
D)  American, less, Canadian

Question 17

An American call option gives the buyer the right to _________.

Accepted Answer

A)  buy the underlying asset at the exercise price on or before the expiration date 
B)  buy the underlying asset at the exercise price only at the expiration date 
C)  sell the underlying asset at the exercise price on or before the expiration date 
D)  sell the underlying asset at the exercise price only at the expiration date 
A)  buy the underlying asset at the exercise price on or before the expiration date 
B)  buy the underlying asset at the exercise price only at the expiration date 
C)  sell the underlying asset at the exercise price on or before the expiration date 
D)  sell the underlying asset at the exercise price only at the expiration date

Question 18

You are convinced that a stock's price will move by at least 15% over the next three months.You are not sure which way the price will move,but you believe that the results of a patent hearing are definitely going to have a major effect on the stock price.You are somewhat more bullish than bearish however.Which one of the following options strategies best fits this scenario?

Accepted Answer

A)  Buy a strip 
B)  Buy a strap 
C)  Buy a straddle 
D)  Write a straddle 
A)  Buy a strip 
B)  Buy a strap 
C)  Buy a straddle 
D)  Write a straddle

Question 19

You write one IBM July 120 call contract for a premium of $4.You hold the option until the expiration date when IBM stock sells for $121 per share.You will realize a ______ on the investment.

Accepted Answer

A)  $300 profit 
B)  $200 loss 
C)  $600 loss 
D)  $200 profit 
A)  $300 profit 
B)  $200 loss 
C)  $600 loss 
D)  $200 profit

Question 20

The Option Clearing Corporation is owned by _________.

Accepted Answer

A)  the exchanges on which stock options are traded 
B)  the Federal Deposit Insurance Corporation 
C)  the Federal Reserve system 
D)  major U.S. banks 
A)  the exchanges on which stock options are traded 
B)  the Federal Deposit Insurance Corporation 
C)  the Federal Reserve system 
D)  major U.S. banks

When issued most convertible bonds are issued _____________.

If you combine a long stock position with selling an at the money call option the resulting net payoff profile will resemble the payoff profile of a _______.

A writer of a call option will want the value of the underlying asset to __ and a buyer of a put option will want the value of the underlying asset to _.

Each listed stock option contract gives the holder the right to buy or sell __________ shares of stock.

You purchase one IBM July 125 call contract for a premium of $5.You hold the option until the expiration date when IBM stock sells for $123 per share.You will realize a ______ on the investment.

What combination of puts and calls can simulate a long stock investment?

Buyers of listed options required to post margins and writers of naked listed options required to post margins.

A futures call option provides its holder with the right to ___________.

An Asian put option gives its holder the right to ____________.

What strategy is designed to ensure a value within the bounds of two different stock prices?

You purchase one IBM July 90 call contract for a premium of $4.The stock has a 2 for 1 split prior to the expiration date.You hold the option until the expiration date when IBM stock sells for $48 per share.You will realize a ______ on the investment.

The initial maturities of most exchange traded options are generally __________.

You purchase a call option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,S_T is the stock price at contract expiration and C₀ is the original purchase price of the option.

The writer of a put option _______________.

All else the same,an style option will be valuable than a __ style option.

An American call option gives the buyer the right to _________.

You write one IBM July 120 call contract for a premium of $4.You hold the option until the expiration date when IBM stock sells for $121 per share.You will realize a ______ on the investment.

The Option Clearing Corporation is owned by _________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

Exam 15: Options Markets

When issued most convertible bonds are issued _____________.

If you combine a long stock position with selling an at the money call option the resulting net payoff profile will resemble the payoff profile of a _______.

A writer of a call option will want the value of the underlying asset to __________ and a buyer of a put option will want the value of the underlying asset to _________.

Each listed stock option contract gives the holder the right to buy or sell __________ shares of stock.

You purchase one IBM July 125 call contract for a premium of $5.You hold the option until the expiration date when IBM stock sells for $123 per share.You will realize a ______ on the investment.

What combination of puts and calls can simulate a long stock investment?

Buyers of listed options __________ required to post margins and writers of naked listed options __________ required to post margins.

A futures call option provides its holder with the right to ___________.

An Asian put option gives its holder the right to ____________.

What strategy is designed to ensure a value within the bounds of two different stock prices?

You purchase one IBM July 90 call contract for a premium of $4.The stock has a 2 for 1 split prior to the expiration date.You hold the option until the expiration date when IBM stock sells for $48 per share.You will realize a ______ on the investment.

The initial maturities of most exchange traded options are generally __________.

You purchase a call option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,ST is the stock price at contract expiration and C0 is the original purchase price of the option.

The writer of a put option _______________.

All else the same,an ______ style option will be ______ valuable than a ______ style option.

An American call option gives the buyer the right to _________.

You write one IBM July 120 call contract for a premium of $4.You hold the option until the expiration date when IBM stock sells for $121 per share.You will realize a ______ on the investment.

The Option Clearing Corporation is owned by _________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

A writer of a call option will want the value of the underlying asset to __ and a buyer of a put option will want the value of the underlying asset to _.

Buyers of listed options required to post margins and writers of naked listed options required to post margins.

You purchase a call option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,S_T is the stock price at contract expiration and C₀ is the original purchase price of the option.

All else the same,an style option will be valuable than a __ style option.